Tagged: Stimulus withdrawal

India’s Q1 GDP Growth Results are Impressive, But Inflation is Still a Concern

Article first published as India’s Q1 GDP Growth Results are Impressive, But Inflation is Still a Concern on Blogcritics.

poverty_india 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%.

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G20 aims to reduce red ink, keep recovery on track

Reuters | Thu Jun 3, 2010 | 3:17pm IST

G20 meeting in Busan June 3, 2010. Disagreements over how quickly, to reduce billowing budget deficits and restore balance to the global economy, risk straining high-level Group of 20 talks that started on Thursday. A plunge in the euro and in global stock markets, triggered by fears that Greece’s debt woes could spread to other euro zone countries, has added urgency to the meetings of G20 finance ministers and central bankers in this southern port city. With officials ruling out agreement in Busan on key financial and regulatory reforms, including a mooted global bank levy, the need to strike the right balance between trimming deficits and sustaining economic growth will take centre stage.

"Countries with high budget deficits need to make sure they can deal with those deficits," Britain’s finance minister, George Osborne, said in Beijing before flying to Busan. "Surplus countries also need to play their part contributing to global growth and that will be one of the big topics for discussion in South Korea," he said. U.S. Treasury Secretary Timothy Geithner said the need to get the balance right was a "shared imperative" recognised by all G20 members. "As the IMF says, we want those fiscal reforms to happen in a way that’s growth-friendly," Geithner told reporters in Washington on Wednesday. "Some countries are in a very strong position. Some countries need to move much more quickly." Another G20 official put the need for coordinated fiscal tightening more graphically: the euro zone crisis had shown that some countries would have to withdraw stimulus earlier than expected, but not everyone should run to the other side of the boat at the same time, the official said.


G20 nations to date have merely discussed the timing of unwinding the super-loose monetary and fiscal policies they launched to cushion the crisis, but the Bank of Canada on Tuesday became the first G7 nation to raise its key interest rate. "I would think we are coming to a time where we could move forward with the 

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Factory output growth eases; seen slowing more

Reuters | New Delhi | Fri Mar 12, 2010 | 3:14pm IST

Industrial output growth eased in January in line with market forecasts and analysts said it could further weaken with an expected rate hike coming on the heels of stimulus withdrawal. The Reserve Bank of India (RBI) is expected to raise its key lending rate by as much as 50 basis points in April to tame inflation that is seen galloping to 9.62 percent in February. Output grew 16.7 percent in January, below the upwardly revised 17.6 percent record growth in December and in line with a Reuters poll forecast for a 16.65 percent rise. Speaking after the data release, the finance ministry’s chief economic adviser Kaushik Basu said the reading backed his view the economy will grow over 8.5 percent in the current quarter. But analysts questioned whether the fast industrial expansion was sustainable.

"Growth at this level does not look sustainable for very very long. The base effect, the cyclical downturn, you can’t just expect people to continue to buy cars," Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai, said. "On the monetary front, the April rate hike may have an impact on (output growth) but that will not be very immediate, there will be a lagged impact." The benchmark 10-year bond yield , which was initially unmoved by the data, gradually ticked up 2 basis points with traders citing the upward revision to December’s figure as the reason for the move. Between April and January, industrial output in Asia’s third largest economy expanded 9.6 percent. It grew 2.6 percent in the year to March 2009. Manufacturing output grew an annual 17.9 percent in January, easing from 18.5 percent recorded in December.   

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Mukherjee seen winning support in fuel price uproar

Reuters | Wed Mar 3, 2010 | 3:44pm IST

The finance minister appeared to be closer to winning key political support for his controversial hike in fuel prices despite an uproar that forced the closure of parliament on Wednesday. Pranab Mukherjee’s budget move to raise fuel prices for the first time since July has met with anger from both the opposition and ruling coalition allies, underlining the challenge in cutting the fiscal deficit from a 16-year-high of 6.9 percent of GDP. The government raised petrol prices about 6 percent and diesel by 7.75 percent in last week’s budget to help increase revenues and cut the budget deficit. But several allies, which help give the government a parliamentary majority, have signalled they will not withdraw support for the ruling Congress party on this issue.

"There is no question of the DMK withdrawing support or the alliance breaking up," Kanimozhi, a senior leader of the DMK, a key regional party that backs the government in parliament, was quoted as saying by the Hindustan Times newspaper. Despite some concerns, the Congress party has not opposed Mukherjee’s decision. "He (Mukherjee) did not talk about a rollback in the increase of fuel prices. He seemed to stand his ground," Jagdambika Pal, a Congress lawmaker, said after a meeting between the finance minister and Congress lawmakers. The row is a test of how far the government can push reforms to liberalise state-regulated sectors like fuel. Strong opposition could make the government more cautious in moving ahead with further reforms such as price liberalisation. A final decision may only rest with Sonia Gandhi, head of Congress and India’s most powerful politician who has a history of supporting pro-populist policies aimed at benefiting the poor, the base of support for the Congress party.   

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India to review economy stimulus

BBC News | 07:54 GMT | Friday, 26 February 2010

India’s government said stimulus measures introduced to boost growth during the downturn would be reviewed, as it unveiled its annual budget. The measures helped to maintain strong growth over the past year, but the authorities now say that rising prices must be controlled. The government projected an 8.7% growth rate for the current fiscal year. Federal finance minister Pranab Mukherjee said the challenge was to return to 9% growth. India’s economy is recovering faster than expected – it grew at an annual rate of 7.9% in the three months to the end of September 2009, after growing 6.7% in the year to the end of March 2009. Strong growth in India’s manufacturing sector is also helping to compensate for falling agricultural output.

Mr. Mukherjee said the economy was now in a “far better position than a year ago”. “We need to reduce the stimulus, important to the economy, and move towards the preferred path of fiscal consolidation,” he said. Mr. Mukherjee stressed the need to cut fiscal deficit, review public spending and cut public debt. The government also announced plans to introduce a Goods and Services Tax and reform direct taxes in April 2011.

Railway funding plan hints at tighter govt budget

Reuters | NEW DELHI | Wed Feb 24, 2010 | 6:59pm IST

India’s railway budget set $9 billion of infrastructure investments but left government funding flat and cut borrowing, pointing to tighter government spending which analysts said may be reflected in Friday’s general budget. They said a cut in freight rates of grains and kerosene, aimed at helping tame persistently high inflation, could be followed by more measures in the main budget. India’s fiscal deficit is projected to reach a 16-year high of 6.8 percent of gross domestic product in 2009/10 and the gap has been met through heavy borrowing in the market. A top government panel has warned this is unsustainable and the deficit had to be cut by managing spending.

Market watchers expect Finance Minister Pranab Mukherjee on Friday to begin withdrawing stimulus measures, and the Reserve Bank is seen raising rates by April to stave off inflationary pressures as economic growth accelerates. “I think this is consistent with the overall tightening across the public policy spectrum,” said N.R. Bhanumurthy of the National Institute of Public Finance and Policy. “The rail budget has showed streaks of tightening … and I suspect the central budget will also follow suit.” The government panel had also said the spending cuts should not come at the cost of developing India’s overstretched infrastructure, needed to boost growth.     Continue reading

Govt won’t meet April 1 target to begin GST – Pranab

Reuters | KOLKATA | Thu Dec 24, 2009 | 6:30pm IST

The government will not meet its April 1 target for implementing a nationwide goods and services tax (GST) as it works towards an agreement with state governments, Finance Minister Pranab Mukherjee said on Thursday. The targeted April 1 deadline for launching the GST, which is intended to simplify India’s revenue system, broaden the tax base and minimise exemptions, had been increasingly in doubt given the opposition at the state level. “We will not be able to meet the GST deadline. We are trying hard for a consensus among states. It will be possible only at an appropriate time,” Mukherjee said at an industry meet.

Earlier this year, the head of a government panel said implementing GST could boost revenue by $15 billion a year by increasing exports, lifting employment and driving growth. India’s federal government sets some taxes, but its states have the autonomy to set their own taxes as well, which are a major source of revenue. Mukherjee also said India is not considering a withdrawal of its fiscal stimulus until the economy makes a complete recovery. “Stimulus package was injected to boost the economy. Unless the full recovery is possible and when the planners are able to make an assessment that it is a time to withdraw, and then only the stimulus package will be withdrawn,” he said. On Wednesday, Mukherjee said India’s economy could grow around 7.5 to 8 percent in the fiscal year that ends in March, exceeding last year’s 6.7 percent expansion, which had followed three years of growth of at least 9 percent.