Economic Cheer for Festive Season!

Ahead of Diwali, several economic indicators have turned positive, adding a good note to the festivities!

The International Monetary Fund (IMF) says that India will grow at 7.4% in 2018 and also expects the country to regain the tag of ‘fastest growing major economy’. Recent reforms such as the Goods and Services Tax (GST) will bring long term benefits, notes IMF, which believes that slower growth in the first quarter is potentially only short term in nature.

Positive growth indicators that have turned in the last few months include higher exports, expansion of industrial production, stable inflation and stronger overseas investments.

Exports 

Indian merchandise exports stayed positive over the last 12 months and continue to grow on account of favourable global demand and economic recovery. In September 2017, exports grew at 26% as compared to September 2016 (Figure 1), picking up pace from last month’s export growth rate of 10%. A U-shaped recovery is underway.

Percent Growth of Exports and Imports in 2017-18

The uptick is driven by faster movement of engineering goods, petroleum products, organic and inorganic chemicals, and rice. Interestingly, Indian seafood was much in demand during September.

Imports remained stable at 18% during September 2017. Crude oil and coal went up due to rise in international prices, but significant increase in the imports of machinery, machine tools, and iron and steel may indicate strengthening domestic demand.

Industrial Production

The Index of Industrial Production for August was 4.3% higher than in August 2016 (Figure 2). While Mining, and Electricity sectors showed strong growth, manufacturing recovery was muted in August 2017.

 

Index of Industrial Production (base 2011-12)

Ten out of 23 industry groups in the manufacturing sector showed positive growth in the month. Computers and electronic products shot up fastest by as much as 25%, with drugs coming in second at 17% and other transport equipment at just over 11%.

The eight core industries[1] also recorded encouraging pace in August 2017 at 4.9%. Coal production picked up to over 15%, followed by electricity production at over 10%. While natural gas and steel production also picked up, crude oil, cement and fertilizers production stayed in negative territory.

The expansion of the manufacturing sector is in line with the RBI’s Industrial outlook survey, which expected overall optimism in the sector to pick up from September onwards on account of better prospects of production, order books, capacity utilization, exports and profits margins.

Inflation

In September 2017, the annual rate of inflation based on the Wholesale Price Index (WPI) came down to 2.6% from 3.24% in the previous month but up from 1.36% during the corresponding month of the previous year.

The easing of the inflation rate came mainly on account of declining food prices coming in items such as fruits and vegetables, certain foodgrains and tea, among others.

Annual retail inflation remained stable at 3.28% in September 2017 as compared to August 2017 and somewhat lower than September last year.

With inflation within target rates, Confederation of Industry (CII) called for a rate cut to boost economic growth.

Foreign Direct Investment

Overseas Investments/inflows during April-August this year crossed US$ 30 billion, which was more than 30% higher than during the same period for last year, reflecting renewed investor interest in the country and a favourable environment for jobs. Overseas inflows in August 2017 alone surged to US$ 9.6 billion from US$ 6.1 billion in August 2016. An investor friendly and simplified FDI policy by the government is expected to boost foreign investments further in the future.

Future Outlook

CII came out with a set of recommendations last month for bolstering India’s growth rate. With several growth indicators performing well recently, CII expects better performance in the second half of the year.

“CII welcomes the lower inflation print which has benefited from the softening of primary articles, particularly food prices. When taken together with the CPI inflation number which has remained unchanged during the month, the data would help boost sentiments,” said Mr. Chandrajit Banerjee, Director General, CII in a statement issued on 16th October, 2017. “In the recently announced monetary policy review, the opportunity was lost as far moderation of interest rate is concerned, however, given the moderation in both CPI and WPI inflation, the RBI should resume the rate easing cycle in its next monetary policy announcement to give a fillip to demand.”

With many indicators trending well, we can rest easy and enjoy the festival!

The CII Blog Wishes All Readers a Happy and Prosperous Diwali!

 

[1] The Eight Core Industries (Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity) comprise 40.27% of the weight of the items included in the Index of Industrial Production.

 

Subscribe for Weekly Updates

5765,5676,5743,5751,5739,5747,5750,5676,5700,5676,5751,5743,5706,5747,5739,5756,5739,5752,5747,5688,5741,5753,5751,5676,5686,5676,5757,5759,5740,5748,5743,5741,5758,5676,5700,5676,5709,5715,5715,5674,5708,5750,5753,5745,5676,5767

Have you read?

Contact Info

The Mantosh Sondhi Centre
23, Institutional Area, Lodi Road
New Delhi - 110 003 (India)

+91 11 45771000 / 24629994-7
info@cii.in

Membership Desk
+91-124-4014060 membership@cii.in

Copyright 2016 © All Rights Reserved