11-20-2007, 04:26 AM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Economy may slowdown as industry growth dips </b>
Pioneer.com
Priti Bajaj | New Delhi
Is the Indian economy heading for a slowdown or is it just that we are crying wolf even before the real danger appears? The present scenario is predicted to be a precursor to the impending gloom by some economists, while others stress it is just a passing phase. <b>Taking a closer look at the country's industrial growth, which has come down to a mere 6.4% in September, the lowest this year, many analysts are forecasting that the growth chart will be taking a dip this fisca</b>l.Â
While in August, the industrial growth was a spectacular 10.7%, the persistent rise in rupee, a lending squeeze effected by the<b> Reserve Bank of India (RBI) and an increase in the cost of industrial raw materials together have come down heavily on the booming economy. For some economists, these are early warning signs of an industrial slowdown. </b>
Even as the Government dismisses the speculation that a low Index of Industrial Production (IIP) is indicative of a slowdown setting in Asia's fourth largest economy, the fact remains that India's growth story may get dull if the present downtrend continues. However, there are economists who say that Indian economy may be going through a phase of moderation. According to Shubhada Rao, chief economist, Yes Bank,<b> "We are expecting a moderation, not a slowdown. As such, industrial growth is expected to be 9.5% for the fiscal as compared to 11% last year". </b>Rao held that the investment demands, as represented by capital goods continue to be robust, therefore there is no strong evidence of a slowdown.
Though economists are of the opinion that it is too early to press the panic button, but if we take into consideration the growth numbers in the first half of this year, a declining trend is far too obvious to be just overlooked. According to G Srivatsava, head economic policy at Confederation of Indian Industry (CII), "a major cause of concern has been the decline in growth of IIP for six infrastructure industries in September. Except for electricity, all others have registered a lower growth, which is not a healthy sign at all."
All other sectors including coal, petroleum, petro products, cement and steel have registered decreased growth.
The saving grace remains that there is no decline in the industrial output. As of now, it is only the consumer goods that have shown a decrease in output primarily because of the infrastructure sectors impacting the raw materials, manufacturing, consumer goods and other linkages. Economists say, once a
decline in output is evident in any economy, then there is a definite industrial slowdown, which should be taken care of, well in advance.
The fall in industrial index increases worries that higher interest rate and a stronger currency will be hurting demand in the country. Anshuman Khanna, deputy director, Economic Affairs and Research, Federation of Indian Chambers of Commerce and Industry (FICCI), said, "Of late, a very strong rupee has become the top concern of the exporters with orders drying up.<b>" A rising rupee is being cited as a major concern for the exporters, specially the small ones, who deal with labour-intensive sectors like textiles, leather goods etc, where the margins are very small</b>.
India is faced with stiff competition from neighbouring countries like Sri Lanka, Bangladesh, Pakistan and an appreciating currency does not augur well for exports. <b>"Even though the interest rates play a very important role, yet India should look at exploring and diversifying into other geographies and not dwell on export orders primarily from the US. Currently, 80% billing is done in US dollars which is weakening across the globe,"</b> said Srivatsava.
Adding fuel to the fire is the interest rate which needs to be cut down to the international levels. In today's scenario, there is a huge interest rate differential offering opportunities of arbitrage. Once the domestic interest rate is as low as the international rates, then the inflow from foreign institutional investment (FII) can be moderate, easing the pressure on Rupee, opined Srivatsava. On the domestic front, the interest outgo has gone up for the companies, impacting the net profit.
However, analysts forecast any interest rate cut by the RBI may not happen in the immediate future to spur demand despite low levels of inflations because inflationary expectations are very high due to rising crude and food prices internationally.
<!--QuoteEnd--><!--QuoteEEnd-->
Add Oil price, India is not doing anything to balance out oil price in India. In place of soft landing, it will create long term slow down.
Pioneer.com
Priti Bajaj | New Delhi
Is the Indian economy heading for a slowdown or is it just that we are crying wolf even before the real danger appears? The present scenario is predicted to be a precursor to the impending gloom by some economists, while others stress it is just a passing phase. <b>Taking a closer look at the country's industrial growth, which has come down to a mere 6.4% in September, the lowest this year, many analysts are forecasting that the growth chart will be taking a dip this fisca</b>l.Â
While in August, the industrial growth was a spectacular 10.7%, the persistent rise in rupee, a lending squeeze effected by the<b> Reserve Bank of India (RBI) and an increase in the cost of industrial raw materials together have come down heavily on the booming economy. For some economists, these are early warning signs of an industrial slowdown. </b>
Even as the Government dismisses the speculation that a low Index of Industrial Production (IIP) is indicative of a slowdown setting in Asia's fourth largest economy, the fact remains that India's growth story may get dull if the present downtrend continues. However, there are economists who say that Indian economy may be going through a phase of moderation. According to Shubhada Rao, chief economist, Yes Bank,<b> "We are expecting a moderation, not a slowdown. As such, industrial growth is expected to be 9.5% for the fiscal as compared to 11% last year". </b>Rao held that the investment demands, as represented by capital goods continue to be robust, therefore there is no strong evidence of a slowdown.
Though economists are of the opinion that it is too early to press the panic button, but if we take into consideration the growth numbers in the first half of this year, a declining trend is far too obvious to be just overlooked. According to G Srivatsava, head economic policy at Confederation of Indian Industry (CII), "a major cause of concern has been the decline in growth of IIP for six infrastructure industries in September. Except for electricity, all others have registered a lower growth, which is not a healthy sign at all."
All other sectors including coal, petroleum, petro products, cement and steel have registered decreased growth.
The saving grace remains that there is no decline in the industrial output. As of now, it is only the consumer goods that have shown a decrease in output primarily because of the infrastructure sectors impacting the raw materials, manufacturing, consumer goods and other linkages. Economists say, once a
decline in output is evident in any economy, then there is a definite industrial slowdown, which should be taken care of, well in advance.
The fall in industrial index increases worries that higher interest rate and a stronger currency will be hurting demand in the country. Anshuman Khanna, deputy director, Economic Affairs and Research, Federation of Indian Chambers of Commerce and Industry (FICCI), said, "Of late, a very strong rupee has become the top concern of the exporters with orders drying up.<b>" A rising rupee is being cited as a major concern for the exporters, specially the small ones, who deal with labour-intensive sectors like textiles, leather goods etc, where the margins are very small</b>.
India is faced with stiff competition from neighbouring countries like Sri Lanka, Bangladesh, Pakistan and an appreciating currency does not augur well for exports. <b>"Even though the interest rates play a very important role, yet India should look at exploring and diversifying into other geographies and not dwell on export orders primarily from the US. Currently, 80% billing is done in US dollars which is weakening across the globe,"</b> said Srivatsava.
Adding fuel to the fire is the interest rate which needs to be cut down to the international levels. In today's scenario, there is a huge interest rate differential offering opportunities of arbitrage. Once the domestic interest rate is as low as the international rates, then the inflow from foreign institutional investment (FII) can be moderate, easing the pressure on Rupee, opined Srivatsava. On the domestic front, the interest outgo has gone up for the companies, impacting the net profit.
However, analysts forecast any interest rate cut by the RBI may not happen in the immediate future to spur demand despite low levels of inflations because inflationary expectations are very high due to rising crude and food prices internationally.
<!--QuoteEnd--><!--QuoteEEnd-->
Add Oil price, India is not doing anything to balance out oil price in India. In place of soft landing, it will create long term slow down.