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Economy - News & Views
Our Opinion

 April 04, 2014

RBI's present stand expected; hawkish stance a worry-...As expected, the RBI kept key policy rates unchanged in the central bank’s first bi-monthly monetary policy announcement. RBI retained the repo rate, the rate at which it provides overnight funds to banks, at 8 per cent. The CRR, which determines the amount of cash that banks have to park with the RBI, has also been left unchanged at 4 per cent of deposits. The RBI has reduced the quantum of overnight funds that banks can borrow from it, while commensurately expanding their access to term money of seven and 14 days duration; the main objective of this move being to improve the transmission of monetary policy impulses across he interest-rate spectrum.

 March 17, 2013

A Responsible Budget within a Restricted Space albeit some Worries on the Expenditure-Revenue Math...The Indian Union Budget for fiscal year 2013-14 has been termed as a responsible budget under difficult circumstances, but a disappointment to those who were expecting extraordinary measures to jump-start the economy. Fiscal deficit in the current financial year has been contained to 5.2 per cent of GDP; this averts any immediate crisis in terms of a sovereign rating downgrade, but has led to a decade low quarterly GDP of 4.5% in the final quarter of 2012, with plan expenditure meant for developmental projects slashed by over rupees 90 thousand crore. With very little room for fiscal stimulus, the Budget has concentrated on infrastructure development and inclusive growth, the most demanding issues at present. Pressing issues like stimulating domestic savings and channeling those to the capital market have also been addressed within the Budget.

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News - Indian Economy News - Global Economy

RBI keeps key policy rates unchanged The RBI kept repo rate and CRR unchanged at 8% and 4%, respectively in the first bi-monthly review of its monetary policy. The bank rate and MSF rate were also unchanged at 9%. It has reduced borrowing under
LAF to 0.25% from 0.5% of NDTL in the overnight repo market and increased liquidity under 7-day and 14-day term repos from 0.5% to 0.75% of NDTL. Although, the RBI noted that lead indicators do not point to any sustained revival in industry and services, it estimated that real GDP growth may pick up to 5-6% in 2014-15 from sub 5% this fiscal. For the year as a whole, the CAD is expected to be about 2.0% of GDP. Policy stance will be firmly focused on keeping the economy on a disinflationary glide path that aims to bring CPI inflation to 8% by January 2015 and 6% by January 2016. The RBI cautioned that there are risks to the forecast of 8% retail inflation by January 2015 arising from a less-than-normal monsoon because of the possible El Nino effect, the uncertainty on MSPs for agricultural commodities and other administered prices, and the outlook for fiscal policy.

Industrial output in positive zone after 3 months Industrial production unexpectedly growth moved into positive territory in January after three months of contraction. . IIP growth was boosted by electricity generation, which was up 6.5% in January helped by extensive government-led investment. Mining and manufacturing remained flat; mining expanded 0.7% in the month. Manufacturing output declined for the fourth consecutive month in January. This sector, which occupies over 75 per cent weight in the IIP, fell by 0.7 per cent compared to a 1.2 per cent decline a month ago. Capital goods output shrank 4.2% in January from a year ago, following a 2.5% contraction in January last year. Cumulative industrial growth in the first 10 months of the current fiscal amounted to zero against a 1% growth in the corresponding period in 2012-13 Production of consumer durables contracted 8.3% in January and 12.5% in April-January.

Retail inflation slows to 25-month low 
According to CPI data retail inflation eased to 8.1% in February against 8.79% in January because of a further decline in food inflation. February inflation is the lowest since January 2012, when it stood at 7.65%. Food inflation moderated to 8.57% in February from 9.9% in the previous month. Inflation also slowed in protein-rich items such as eggs, fish and meat to 9.69 per cent in February versus 11.69 per cent in January. The rate of price rise slowed to 9.93 per cent for cereals and related products from 11.42 per cent in January. However, the pace of price increases for milk and its products picked up in February to 10.37 per cent from 9.82 per cent in the previous month. The prices of fruits, condiments and spices also rose faster last month. Core inflation, a measure of demand, eased to 7.9% in February from 8.1% the month before. Retail inflation has been easing for three months. The CPI data showed inflation rates for rural and urban areas were at 8.51 per cent and 7.55 per cent, respectively.

February trade deficit narrows India's merchandise exports fell for the first time in eight months in February, but a sharper decline in imports, led by a fall in gold imports, brought down the trade deficit to its lowest since last March. Exports fell 3.7% to $25.6 billion in February from $26.6 billion a year-ago, dragged down by sectors such as petroleum, engineering and pharmaceuticals, while imports fell 17% to $33.8 billion from $40.7 billion, narrowing the trade deficit by 42% to $8.1 billion. Oil imports fell 3% to $13.7 billion in February, and non-oil imports fell 25% to $20.1 billion. The contraction in non-oil imports was led by a 70% decline in gold imports to $1.6 billion.
In the April-February period, while exports grew 4.8% to $282.7 billion, imports contracted 8.6% to $410.8 billion. Trade deficit in the first eleven months of this fiscal year was down 29% at $128 billion. Decline in exports, witnessed in Feb, may continue for more time as the EU has withdrawn preferential treatment to merchandise shipments from India. India’s current account deficit narrowed to 0.9% of gross domestic product in the quarter ended December, from 1.2% of GDP in the preceding quarter.

Contraction in India's services sector moderates in February The HSBC Services PMI, compiled by Markit, rose to 48.8 in February from 48.3, but remained below the 50 mark that separates growth from contraction for the eighth month. The contraction in India's services sector, which accounts for about 60 percent of GDP, moderated but new business orders shrank for an eighth month and the employment sub-index slipped to 50.1 from 50.9.

Forex reserves falls by 81.205 billion Forex reserves fell to $292.08 billion in mid-January after RBI sold dollars to stabilise the rupee amid increased demand for the US currency from importers including oil companies. Foreign-currency assets held by the RBI, which include the effects of appreciation or depreciation of non-US currencies such as the euro, pound and yen held in the reserves, fell by $1.209 billion in the week to $265.935 billion. 

Global EconomyAnalysts’ reports indicate that the global economy will likely experience steady, broad-based growth in 2014 thanks to the extraordinary expansion in central bank balance sheets in 2013. The global growth will accelerate in 2014 and 2015, as major advanced economies' (MAE) recovery is strengthening, though growth rate in emerging markets (EMs) will remain broadly flat at around 5% in 2014. Rising asset prices in combination with fading near-term fiscal uncertainties will drive global aggregate demand growth forward, adding stability to the ongoing global recovery from the financial crisis of 2008. Rising consumer optimism, fuelled by higher asset prices, steady job growth and gradually easing credit conditions are likely to lead to faster consumption growth. Corporations, which are sitting on record levels of liquidity, are expected for the first time to raise capital spending.

OECDThe recovery is advancing well in the US and the UK, but proceeding more unevenly in Japan and still lagging behind in the Euro area. A series of one-off factors – severe winter weather in North America and anticipation of an April 1st rise in Japanese consumption tax – have led to an uneven pace of growth. the slowdown in emerging economies is likely to be a drag on global growth. The OECD projects that the US will grow at an annualised rate of 3.1 percent in the second quarter of 2014, after first quarter activity was affected adversely by exceptionally cold weather. Extreme weather also impacted Canada, which is expected to experience similarly uneven growth in the first quarter, followed by a bounce back in the second quarter that should push the growth rate up to 2.4 percent. In Japan, planned fiscal consolidation is projected to cut into near-term growth. Implementation of a higher consumption tax rate is expected to result in a surge in activity in the current quarter, pushing growth up to an annualised rate of 4.8 percent. This will be counterbalanced by a contraction of activity in the second quarter before a more normal pattern of recovery gets back on track. The UK is projected to grow at annualised rates above 3 percent in the first and second quarters. Wide disparities are still seen in Europe, where the three largest Euro area economies (Germany, France and Italy) will grow at a combined weighted average of 1.9 percent rate in the first quarter and a 1.4 percent pace in the second. Germany is forecast to grow by about 3.7 percent annualised in the first quarter and 2.5 percent in the second quarter, while the French economy’s annualised growth rate will hover around 1 percent and Italy’s will remain below 1 percent for each of the first two quarters, according to the OECD’s Interim Economic Assessment.

U.S.U.S. retail sales rebounded in February increasing 0.3 percent month on month, with receipts rising in most categories. The gain followed a 0.6 percent drop in January and ended two straight months of declines.
The number of Americans filing new claims for unemployment benefits fell more than expected and hit a three-month low last week, a sign of strength in the labour market; initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 323,000, the lowest level since the end of November. The four-week moving average for new claims, considered a better measure of underlying labour market conditions as it irons out week-to-week volatility, slipped 2,000 to 336,500. Unit labour costs - a gauge of the labour cost for any given unit of output – were up 1.1 percent in 2013, the weakest reading since 2010.

Euro AreaEuro area industrial production unexpectedly declined 0.2 percent from December in January as energy output dropped, underscoring the fragility of the currency bloc’s recovery from a record-long recession with industrial production having declined in four out of the last five months. Energy production fell 2.5 percent for a second month in January and output of durable consumer goods declined 0.6 percent. Factory production in Germany, Europe’s largest economy, increased 0.4 percent after a 0.1 percent decline in December. In France, output fell 0.3 percent, while it increased 1 percent in Italy. While the Euro area economy has expanded for three straight quarters, the pace of growth hasn’t exceeded 0.3 percent. Unemployment remains near a record and inflation has been below the European Central Bank’s 2 percent ceiling for more than a year leading to fears of deflation.

Japan Core machinery orders rose 13.4 percent month-on-month, in January at the fastest pace in almost a year, rebounding from a record decline in the previous month, in a positive sign that long-dormant business investment will start to accelerate and contribute to the broader economy. Orders from the services sector rose 12.1 percent, showing that demand for business investment is spreading through all sectors of the economy. Compared with a year earlier, core orders, a highly volatile data series, increased 23.6 percent in January.

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Economy - Indicators

Indian Economy

4.70% - Q3, 2013-14
4.80% -
Q2, 2013-14

4.40% -
Q1, 2013-14

4.80% - Q4, 2012-13

Revised All-India IIP
-0.6% (December, 2013)
1.3% (November, 2013)
-1.8% (October, 2013)
#:Base 2004-05=100

WPI Inflation(%)

All Commodty:4.68% (Feb, 2014)
All Commodty:
5.05% (Jan, 2014)
All Commodty:6.16% (Dec, 2013)

CPI Inflation(%)
8.10% (All India); 8.51% (Rural Areas); 7.55% (Urban Areas)
(February, 2014)
Interest Rates
CRR: 4.00% p.a (wef  9 February, 2013)
MSF Rate: 9.00% p.a. (wef 28 Jan, 2014)

Reverse Repo Rate: 7.00%
(wef  28 Jan, 2014)
Repo Rate: 8.00%
(wef  28 Jan, 2014)
: 8.09/ 8.06 (January 30, 2014)
Exchange Rate
60.32 (Dollar), 83.09(Euro),
99.87 (Pound) , 58.94 (Yen) [March 24, 2014 to March 28, 2014, weekly average]
Updated on 08 April, 2014
See Terminology section for explanations and notes.
 Global Indicators on 04 April, 2014

Global Economy


4.1 Q4-2013
Updated on 04 April, 2014
Emp : Unemployment Rate

Key Reports on 05 April, 2014
RBI's First Bi-monthly Monetary Policy 2014-15
Key Features of Union Budget 2014-15
Second Quarter Review of Monetary Policy 2013-14
Developments in India's Balance of Payments during April-June 2013-14
IMF World Economic Outlook (WEO) October 2013
IMF Global Financial Stability Report
IMF Fiscal Monitor
World Development Report 2014 - World Bank
World Economic Situation and Prospects 2013 - UN

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