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Beyond the gloom and doom
“Indians should look beyond the gloom and doom,” industry leader Mukesh Ambani said at an award function recently, expressing confidence in the Indian economy.
This marks a departure from India Inc’s pessimism about the economy, which shows signs of bottoming out. The stock indices too have bounced back while the rupee has appreciated to around Rs. 61-to-a-dollar levels from its all-time low of Rs. 68.
Here are some bright spots in the economy:
Factory output, measured by the Index of Industrial Production (IIP), rose 2.6% in July after declining for two successive months. IIP fell 1.1% in June. Most analysts had expected the decline to continue. While this was led by expansion in the manufacturing, capital goods and power sectors, private consumption growth still is at a decade low. However, this could gain traction by a good monsoon. But we also need to note, that a large part of the rise was due to one item and to that extent we need to be watchful of future IIP trends.
India’s import bill is driven higher by fuel and gold. The government has been desperately trying to cut down imports of the yellow metal, the most expensive non-essential item in the import bill, by hiking duties and this seems to have paid off. Gold imports fell to $650 million in August from $2.2 billion in the previous month.
p>A rise in imports widens the trade and the current account deficit -- the money that the country owes to the world. A high deficit causes volatility in the rupee, which fell to a life-time low of Rs. 68 per dollar.
India is a net importer. This means, its import bill runs higher than its export bill. This leads to a trade deficit. In August, this deficit fell to a five-month low of $10.9 billion. This was led by a 13% rise in exports to $26.1 billion in August, and a 0.68% fall in imports to $37 billion. The government expects this trend to continue on the back of stability in Europe and economic recovery in the US that will fuel demand for Indian goods in the export market. The reduction in imports was largely due to the decline in gold imports.
Global oil prices
83% of India’s oil consumption is imported. A rise in oil prices internationally, thus, does not bode well for the country as it will push up our import bill. Any conflict in the Middle-Eastern countries drives prices. This time it is Syria. However fears were about an American strike over usage of chemical weapons have abated after Syria accepted Russia’s proposal to surrender weapons to the UN. Oil prices have thus eased to $110-a-barrel levels from $116 per barrel. The fall in price is positive for India.
After a consecutive nine-month decline, sales of domestic passenger cars grew 15% in August to 1,33,486 units, according to industry body SIAM. This is up from 1,15,705 units in August last year. Sales of two-wheelers also rose by 3.8%. Auto sales reflect the country’s demand scenario.
Rainfall is very important to the country, as it means a bumper harvest. This in turn helps reduce inflation, and also leads to rural consumption, good for consumer goods and automobile companies. This year, India has seen 804.4 mm of cumulative rainfall from June to September, according to a report, 8% higher than the normal 741.7 mm rainfall expected each year.
India imported 845 tonnes of gold in the fiscal year gone by. This is expected to fall 11% to 750 tonnes in FY14, according to Arvind Mayaram, economic affairs secretary at the ministry of finance. To curtail the purchases, import duty on gold has been increased four times this year to 15% from 5% last year.