Home' Trinidad and Tobago Guardian : April 19th 2015 Contents SBG12 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 19 • 2015
Up until now, India
was the bright spot
in a relatively dismal
2015 BRIC story, but
it looks like things are
starting to turn down
for the nation of 1.3
Weak domestic and external demand,
depressed industrial production, and stub-
bornly low inflation have some analysts
But lets backtrack.
While China, Russia, and Brazil have all
run into trouble, India had been well posi-
tioned for growth for a bunch of reasons:
Namely, the impact of falling oil prices on
the net-importing country; low exposure
to its flailing neighbour, China; the rock-
star central bank governor s successful battle
against inflation; and pro-business Narendra
Modi s election, which boosted investor
confidence and sent stocks climbing last
But last month, retail and wholesale infla-
tion came in much lower than expected.
(CPI inflation growth came in at 5.17 per
cent year on year, versus expectations of
5.41 per cent, while WPI inflation contracted
2.33 per cent, more than the expected 2.1
Societe Generale s Kunal Kumar Kundu
chalks it up to weak demand, noting that
domestic demand has remained subdued
for the past four years. More recently, rural
wage growth has slowed too.
Plus, in that time, "every spurt in domestic
demand has been met by the drawing down
of inventories rather than an increase in
production," Kundu wrote.
External demand has been weak. External
demand has slid too.
While Morgan Stanley analysts predict a
rise in urban consumption and capital
expenditure due to "government policy
efforts to improve business environment
and fast-track the decision-making process,"
it s pretty likely that Reserve Bank of India
governor Rajan will be cutting rates again
After two surprise rate cuts earlier this
year, Rajan left the benchmark rate at 7.5
per cent last week. The central bank meets
again on June 2; but knowing Rajan s affinity
for trolling market watchers with off-cycle
rate cuts, the cut could be sooner than
The flipside of this argument is that
India s GDP growth is actually looking
pretty strong. In its biannual World Eco-
nomic Outlook released this week, the IMF
predicted that India would grow faster than
China in 2015 and 2016.
But remember that India just completely
changed the way it calculates GDP---con-
fusing everybody, including Rajan---so it s
probably wise to take these numbers with
a grain of salt.
In a recent note, Capital Economics Shi-
lan Shah wrote that for now, it s best to
focus on other indicators of economic activ-
ity rather than GDP---like those weak infla-
"While the Indian economy has the
potential to match China s in both its
growth rates and in its importance to the
global economy, there is a still a long way
to go before this is realised," he wrote..
India will outstrip China in economic growth
this year, according to a new IMF report,
due to a recipe of policy reforms, an increase
in investment, and lower oil prices.Low oil
prices may not be good for energy produc-
ers, but they are good for just about everyone
else, including entire national and regional
economies. Yet a new report by the Inter-
national Monetary Fund (IMF) says emerging
economies are still experiencing weak growth; with
the exception of India.
In fact, the IMF s World Economic Outlook (WEO)
for 2015, issued April 14, says that India will outstrip
China in economic growth this year, due to a recipe
of policy reforms, an increase in investment and
lower oil prices. )
The WEO forecast said India s growth will increase
from 7.2 per cent in 2014 to 7.5 per cent this year,
then level off for at least a year at a 7.5 per cent
growth rate in 2016. The report said China s growth,
meanwhile, is likely to fall from 7.4 per cent in 2014
to 6.8 per cent this year and 6.3 per cent in 2016.
The price of oil is a major factor in India s growth,
the IMF document said: It not only leaves money in
consumers pockets for spending on other goods or
for saving, it also tempers the country s overall inflation
rate, which ordinarily tends to rise and even spike
during periods of growth.
For emerging countries in general, the IMF sug-
gested structural reforms that include clearing imped-
iments to the infrastructure of their power sector,
improving conditions for labor and education and
streamlining their product markets to improve both
productivity and their competitive edge.
This has already begun to happen in India since
Narendra Modi became prime minister last May, the
WEO said. "In India, the post-election recovery of
confidence and lower oil prices offer an opportunity
to pursue such structural reforms," it concluded. The
drop in oil prices began in late June 2014, a month
after Modi took office.
India, though, is more of an exception than an
exemplar of growth in emerging market economies.
In other such states, weak banks and large debt are
holding back growth. AP
The strongest BRIC
is starting to crumble
India is reaping the
rewards of cheap oil
An Indian worker fills the fuel tank of a vehicle at a fuel station in New Delhi, India.
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