Article first published as Indiaâ€™s Q1 GDP Growth Results are Impressive, But Inflation is Still a Concern on Blogcritics.
It is widely believed that the Asian emerging economies are leading the world economy to recover from its worst crisis of 2007, since the ‘Great Depression’ of 1930s. After observing the GDP growth figure of 8.8% in the first quarter of FY 2010-11 (begins from April 2010 and ends in March 2011), it is understood that the expectations on India are not misplaced. The Planning Commission has released the data for Q1 last Tuesday. India’s GDP has grown by 8.8% from 8.6% of its previous quarter i.e. 4th quarter of previous financial year 2009-2010 despite partial withdrawal of stimulus measures. It is the highest growth rate since last quarter of 2006-07. The GDP growth of Asia’s 3rd largest economy after China and Japan is particularly notable because of the slow pace at which the GDPs of the developed economies like the US, Japan and the EU have grown in the same period.
As per the data released the robust GDP growth is driven by equally robust manufacturing sector growth that grew by 12.4 percent against 3.8 percent in the same period of last fiscal year. Agriculture and allied activities also fared well which expanded by 2.8% against 1.9% in Q1 of FY10. India’s Prime Minister Dr. Manmohan Singh has been advocating that agriculture sector has to grow by at least 4% for India’s GDP to grow by double digit figure. The Finance Minister Pranab Mukherjee expressed confidence that Indian GDP growth would register the targeted figure of 8.5%. The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia is even more optimistic of GDP growth rate for the present fiscal surpassing the targeted figure of 8.5%.
Reuters | Sat Jul 24, 2010 | 12:09pm IST
Prime Minister Manmohan Singh on Saturday reiterated his prediction headline inflation would ease to 6 percent by December, a forecast more optimistic than that delivered by his economic advisers a day before. The prime minister’s Economic Advisory Council had said inflation would be at 7-8 percent by the year-end, compared with 10.55 percent in June, and its chairman recommended strong monetary action to tame runaway prices. Singh’s statement comes amid a growing divergence between the government and the central bank on the need for monetary tightening to cool inflation that has been in double digits for five straight months.
New Delhi puts high food prices as the cause and argues normal monsoon rains would cool inflation, while the Reserve Bank of India (RBI) says demand-side factors will continue to keep up pressure on inflation. On Saturday, Singh backed his officials’ view. "The present high rate of inflation is mainly due to food price inflation," he told a conference of top federal and state policymakers gathered to assess the country’s development plans. "The government has taken a number of steps to curb inflation. With a normal monsoon, which is the expectation at present, the rate of inflation will abate in the second half of the year."
Reuters | Thu Jul 22, 2010 | 8:52pm IST
Monsoon rains were 17 percent below normal in the week to July 21, improving from the previous week and boosting hopes of good harvests in one of the world’s biggest consumers of sugar, grain and vegetable oils. Total rainfall since June 1, the start of the four-month season, was 12 percent below average, but heavy, well-distributed showers in early July and the past week have softened and moistened the soil, helping planting of soybean, rice, cotton and corn. In the previous week, rainfall was 24 percent below normal, raising concerns of crop loss. "A 10-20 percent rainfall deficit does not ruin production prospects for summer crops as long as they are sown on time," said H.S. Gupta, director of the Indian Agricultural Research Institute, told Reuters. The government, struggling to control inflation since food prices started rising after last year’s severe drought damaged rice and cane crops, making India a large sugar importer and a key factor that hoisted New York raw sugar futures to the highest in 29 years.
"I am still optimistic about the success of this year’s monsoon and farm output," said Gupta, whose institute was the research hub during India’s green revolution in the sixties. Farm scientists say that even distribution of monsoon rains will help crops. "This year’s monsoon rains have been distributed well except in some part of eastern and western India," said A.K. Singh, deputy director general at the government-run Indian Council of Agricultural Research. Last week, India’s biggest cane-growing state of Uttar Pradesh received heavy rainfall, boosting prospects of a surge in sugar output in the world’s top consumer of the sweetener. India’s sugar output is expected to rise to 25 million tonnes in the new season that starts on Oct. 1, from 18.8 million tonnes in 2009/10. The International Sugar Organisation expects India, the world’s top producer after Brazil, to export 500,000 tonnes next year as local output continues to rise after sinking to 14.7 million tonnes last year.
Reuters | Tue Jul 20, 2010 | 2:20pm IST
India is looking to rejig its subsidy mechanism, Cabinet Secretary K.M. Chandrasekhar told reporters on Tuesday, indicating the government’s intent in slashing its fiscal deficit. India spent about $26 billion in food, fuel and fertiliser subsidies in the past fiscal year that ended in March, and a reduction in the subsidy bill will help it rein in fiscal deficit to the budgeted 5.5 percent level for the current year. New Delhi recently freed petroleum pricing from government control, and raised the prices of other fuels in a move to reduce its fuel subsidy burden. "We are looking at subsidies, how the subsidy system can be rejigged to ensure it reaches the poorest of the poor on one hand, and at the same time it incentivises production," Chandrasekhar said.
Monsoon rains, which are critical to cooling food prices, are likely to be normal to good this year, he said. Food inflation snapped a two-week easing trend in early July, reinforcing expectations for a 25-basis points hike in the central bank’s policy review next Tuesday. The weather office last week said monsoon rains, which irrigate 60 percent of the country’s farms, were 24 percent below normal in the week to July 14. The cabinet secretary, the highest ranked bureaucrat in the country, said he expects headline inflation to come down to between 5 to 6 percent by the end of this year.
The wholesale price index rose 10.55 percent in June from a year earlier, and what could concern policymakers the most was the pick-up in non-food manufacturing inflation that accelerated to 8.6 percent from 6.6 percent in May, suggesting broader inflation is becoming demand-driven. The Reserve Bank of India closely monitors movement in prices of non-food manufacturing items, which make up a little over half of the wholesale price index. The central bank had surprised markets on July 2 by lifting policy rates by a quarter point, its third hike this year, citing a rapid pick-up in non-food prices.
Bloomberg News | Jul 19, 2010
India’s inflation will accelerate in July, the government’s top statistician said, increasing pressure on the central bank to raise interest rates next week for a fourth time in five months. “The inflation number in July will be higher than in June, in large measure because of what has happened to fuel prices,” T.C.A. Anant, 52, said in a July 16 interview in New Delhi, without providing details. The benchmark wholesale-price index jumped 10.55 percent in June after climbing 11.23 percent in April, the most in 19 months, a report showed last week. Prime Minister Manmohan Singh’s government on June 25 allowed state-run refiners including Indian Oil Corp. to raise prices of gasoline and diesel in a bid to cut its oil subsidy and narrow the budget deficit. Governor Duvvuri Subbarao is due to announce the next monetary policy decision on July 27.
“The full impact of the fuel price revision on inflation numbers is yet to be seen,” the New Delhi-based Federation of Indian Chambers of Commerce & Industry said in a report on July 17. “While normalization of the monetary policy is expected and the Reserve Bank of India would continue to tighten rates in the months ahead, premature and aggressive rollback of easy money policy can jeopardize growth.” Subbarao has increased the reverse repurchase and repurchase rates by three-quarters of a percentage point since mid-March. The reverse repurchase rate is 4 percent and the repurchase rate is 5.5 percent.
Reuters | Mon Jan 25, 2010 | 5:59pm IST
The ruling Congress party is seeking to deflect blame for surging food prices and inflation, just as the central bank looks set to tighten policy, but in doing so it risks upsetting a coalition ally running the farm ministry. With overall inflation at its highest in a year and food prices rising by 20 percent in the year to December, Congress is trying to stop opposition barbs from eroding its electoral support, after it won a fresh five-year term last year. “Our primary concern is that the agricultural ministry, which is also the ministry for food, food distribution and consumer affairs needs to work proactively with state government to see that this spike settles down,” Congress party spokesman Manish Tiwari said on Monday.
The agriculture ministry is headed by Sharad Pawar, head of the Nationalist Congress Party which has supported Congress since its election in 2004, who is not happy at taking the blame for rising prices after the weakest monsoon in 37 years. “The Prime Minister and everybody else come together and decide the price policy. Nobody decides at the spur of the moment,” Pawar told reporters on Monday. India’s wholesale price index rose to 7.31 percent in December, the highest in a year. The tussle underscores the dilemma of the Congress party, which aims to rein in inflation without denting its rural base which helped it win last year’s general elections as farmers gained from rising grain prices. Continue reading
Reuters | New Delhi | Sat Jan 2, 2010 12:07pm IST
The economy will expand 8 percent in 2010/11 after growing between 7 and 7.5 percent in the current fiscal year to end-March, The Times of India reported on Saturday, quoting the prime minister’s economic adviser C. Rangarajan. “There is reason why I expect 8 percent growth in the next fiscal (year). Agriculture would improve with normal monsoon and it would add 0.5-1 percent in the GDP growth,” the newspaper quoted him as saying.
The economy grew an annual 7.9 percent in the quarter through September; it’s fastest in 18 months, prompting the finance ministry to revise the growth forecast for the current fiscal year to around 8 percent from 7.0 percent. The economy expanded 6.7 percent in 2008/09 (April-March), slower than the 9 percent or more in the previous three years. Rangarajan also said the economy would return to an annual growth rate of 9 percent in the fiscal year to end-March 2012 on the back of an improvement in the world economy and global trade.