Economy
Economy
Back At 4.25%, retail inflation hits 25 month-low in May on softer food prices and favorable base effect
Date: 12th Jun, 2023
Source: Mint
India's consumer price index (CPI) inflation eased sharply to 4.25 per cent in May hitting a 25-month low and coming under the Reserve Bank of India's upper tolerance limit of 6 per cent for the third straight month. May's retail inflation declined from 4.7 per cent recorded in April 2023 and 7.04 per cent in the year-ago period (May 2022).
The consumer food price index (CFPI) eased to 2.91 per cent in May from 3.84 per cent in April. Rural inflation in May stood at 4.17 per cent while urban inflation stood at 4.27 per cent, according to data released by the Ministry of Statistics and Programme Implementation on June 12.
May's retail inflation print came in line with a Mint poll of 19 economists which had projected that CPI inflation is likely to have fallen to a 25-month low of 4.34 per cent in May from 4.70 per cent in the previous month, helped by softer rise in food prices and a favourable base effect. However, CPI inflation still remains above the RBI's medium-term target of 4 per cent for the 44th month in a row.
Retail inflation for vegetables witnessed a contraction of 8.18 per cent in May, while inflation for oils and fats also contracted by 16 per cent. Inflation levels for cereals products stood at 12.65 per cent, milk and products at 8.91 per cent, and spices at 17.9 per cent.
"Inflation softened further in May as a high base effect continued to pull down the prints. Food inflation continued to moderate and it was encouraging to see a seasonally adjusted sequential decline in the headline inflation as well,'' said Sakshi Gupta, Principal Economist, HDFC Bank.
In April, retail inflation eased to an 18-month low of 4.7 per cent, from 5.66 per cent in March, largely due to a moderation in food prices, which accounts for nearly half of the overall consumer price basket.
For the second quarter, RBI estimates retail inflation to come in at 5.2 per cent, for Q3FY24 it expects 5.4 per cent and for Q4FY24 the central bank expects inflation to come in at 5.2 per cent.
Back ‘Bright spot in global economy’: India's GDP has touched $3.75 trillion-mark in 2023, says Nirmala Sitharaman
Date: 12th Jun, 2023
Source: Mint
India's gross domestic product (GDP) has touched the $3.75 trillion-mark in 2023 so far from around $2 trillion in 2014, said finance minister Nirmala Sitharaman on June 12. FM Sitharaman has called India a ‘bright spot’ in the global economy, highlighting its position as the fifth largest economy in the world. At current prices, India's GDP ranks above the UK ($3,159 billion), France ($2,924 billion), Canada ($2,089 billion), Russia ($1,840 billion), and Australia ($1,550 billion) at current prices.
RBI monetary policy update: keeps repo rate unchanged, retains FY24 GDP growth forecast at 6.5%
Date: 08th Jun, 2023
Source: The Hindu
The Monetary Policy Committee (MPC) of the Reserve
Bank of India (RBI), on the basis of an assessment of the current and
evolving macroeconomic situation, on June 8 decided to keep the
policy repo rate under the liquidity adjustment facility (LAF)
unchanged at 6.50%.
The standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%, RBI Governor Shaktikanta Das said.
This is the second time that the policy rate
has been paused after a 250 basis point conservative rate hike to curb inflation.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI),
on the basis of an assessment of the current and evolving macroeconomic
situation, on June 8 decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%
The standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%, RBI Governor Shaktikanta Das said.
This is the second time that the policy rate has been paused after a 250 basis point conservative rate hike to curb inflation.
The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth, he said.
“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” he added.
On the outlook, Mr. Das said going forward, the headline inflation trajectory was likely to be shaped by food price dynamics. Wheat prices could see some correction on robust mandi arrivals and procurement.
Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs. The forecast of a normal south-west monsoon by the India Meteorological Department (IMD) augurs well for kharif crops; however, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production, he said.
“Crude oil prices have eased but the outlook remains uncertain. According to the early results from the Reserve Bank’s surveys, manufacturing, services and infrastructure firms polled expect input costs and output prices to harden,” he said.
Taking into account these factors and assuming a normal monsoon, CPI inflation has been projected at 5.1% for 2023-24, with Q1 at 4.6%, Q2 at 5.2%, Q3 at 5.4% and Q4 at 5.2%. The risks are evenly balanced.
On growth, Mr. Das said higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.
The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity. Weak external demand, geoeconomic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook, he added.
Taking all these factors into consideration, real GDP growth for 2023-24 has been projected at 6.5% with Q1 at 8.0%, Q2 at 6.5%, Q3 at 6.0%, and Q4 at 5.7%, with risks evenly balanced, he further said.
OECD marginally raises India's GDP growth forecast to 6% for FY24.
Date: 07th Jun, 2023
Source: Business Standard
The Organization for Economic Co-operation and Development (OECD) has marginally raised its 2023-24 (FY24) growth forecast for India to 6 per cent, from 5.9 per cent estimated earlier, while maintaining that “weak global demand and the effect of monetary policy tightening will constrain” growth in the world’s fifth-largest economy in the current fiscal year.
“Moderating inflation and monetary policy easing in the second half of 2024 will help discretionary household spending regain momentum. This, along with improved global conditions, will help economic activity to accelerate, with the growth of 7 per cent in real gross domestic product (GDP) in 2024-25,” the grouping of advanced economies said in its latest Economic Outlook. Global GDP growth in 2023 is projected to be 2.7 per cent, the lowest annual rate since the global financial crisis, except for the 2020 pandemic period. OECD said 2022-23 (FY23) ended on a positive note for India with 7.2 per cent growth, due to higher-than-expected agriculture output and strong government spending. “However, high inflation, in particular for energy and food, and the ensuing monetary tightening to anchor expectations are weighing on purchasing power and household consumption, particularly in urban areas. Tighter financial market conditions are reflected in weakening credit-supported demand for capital goods, a good proxy for business investment,” it said. The grouping of rich nations said most risks to its growth projections for India are tilted towards the downside.
“While banks’ solvency ratios and financial results have improved and the authorities have enhanced loan-loss provisioning and established a ‘bad bank’, any deterioration of banks’ asset quality could threaten macro-financial stability,” it cautioned. “In the run-up to the 2024 elections, fiscal consolidation may be delayed, and the conclusion of trade agreements may become more difficult. A potentially below-normal monsoon season could also impact growth. Declining geopolitical uncertainty, on the other hand, would boost confidence and benefit all sectors, as would a faster-than-expected conclusion of free-trade agreements with key partners and the incorporation therein of services,” it said. OECD said despite an impressive growth and development record, daunting challenges remain for India. “Creating good jobs is the most promising pathway to reduce poverty, which is particularly high in the female population. Increasing investment in education and vocational training, and updating labour laws, would help to achieve this objective. India is particularly vulnerable to extreme heatwaves and must make progress in mobilising resources for investment in the green economy,” it said. “Low labour productivity is affecting the competitiveness of ‘Made in India’ goods and participation in global value chains. Employment and wage estimates suggest improving labour market conditions in rural areas, while export-oriented service firms report increasing difficulties filling vacancies,” it added.
OECD said India’s macroeconomic policies remain restrictive. “During the projection period, the
priority for fiscal policy is to control government debt, to keep it at sustainable levels, reduce
interest payments, and thereby free resources for public investment in physical and human
capital and initiatives to adapt to population ageing. The next 25 years until the 2047 centenary
of Independence will be crucial for India to fight poverty and the government strategy (so-called
Amrit Kaal) will require a large increase in capital investment outlays,” it added.
The World Bank said India would remain the fastest-growing economy in terms of both aggregate
and per capita GDP among the largest emerging market and developing economies while
retaining its growth forecast for Asia’s third-largest economy at 6.3 per cent for FY24.
The robust FY23 GDP data and encouraging signs of high-frequency indicators led to a spate of
upward revisions in FY24 GDP growth forecasts by analysts. While State Bank of India revised
its growth projection for FY24 to 6.7 per cent, from 6.2 per cent, JP Morgan revised it to 5.5 per
cent, from 5 per cent estimated earlier.
To join or not? India yet to take a final call on IPEF trade pillar
Date: 07th Jun, 2023
Source: Business Standard
India will soon take a final call on joining the trade pillar of the Indo-Pacific Economic Framework (IPEF) amid growing feelings within the government that it may be losing out on shaping the negotiations with its ‘observer’ status. India pulled out of the IPEF’s trade pillar-related negotiations in September last year, citing it was unclear what benefits member countries, including India, would derive from the negotiations. Besides, a broad consensus had then not emerged on sensitive issues such as labour, environment, digital trade, and public procurement.
As a result, India decided to wait for the final contours, and chose to be an ‘observer’. While the United States (US) Trade Representative — responsible for coordinating US international trade and negotiations with other countries — shared the trade pillar’s negotiating text with 13 other IPEF partners earlier this year, being just an observer, India has not able to get access to the negotiation rounds regarding the trade pillar that kick-started thereafter, two people aware of the matter said. This has set off discussions among policymakers about whether India should join the trade pillar now, participate in negotiations, or rather contemplate joining it at a later stage when negotiations are concluded.
In case the latter happens, India will have to accept what will be offered, one of the persons referenced earlier told Business Standard. The commerce department will soon take a final call on this matter, which will also involve seeking approval from the Prime Minister’s Office regarding India’s stand on this. “Does it make more sense to take part in negotiations than not having an opportunity to negotiate/voice concerns regarding some aspects of the trade pillar? Discussions are on. Stakeholder consultations, along with a detailed study to understand the implications of the trade pillar, have been done. A final decision on this will be made soon,” said the person quoted earlier.
During the IPEF’s ministerial meetings in Singapore and Detroit, India also had bilateral meetings with other member nations, including the US, to get greater clarity on some aspects of the pillar. Launched jointly a year ago, IPEF is seen as an economic initiative to counter China’s influence in the South and Southeast Asian nations. The US and the 13 other members of the IPEF are Australia, Brunei, Fiji, Indonesia, India, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. IPEF has four pillars: trade, supply-chain resilience, clean economy, and fair economy (tax and anti-corruption) under the economic initiative. Except for India and Malaysia, the rest of the countries have joined all four pillars.
Arpita Mukherjee, professor, Indian Council for Research on International Economic Relations, said that India may not have joined the trade pillar owing to certain sensitive areas such as digital trade or due to high tariffs. “However, joining the pillar later might place us at a disadvantage and we may lose out on the scope of participating in negotiations. Also, if we don’t join the trade pillar, we may be able to use it as a bargaining tool with major trading partners like the US to do a bilateral agreement,” she said. Mukherjee further explained that since there is synergy between the trade and supply-chain pillar, and since India’s competitors such as Vietnam and Thailand are a part of both, they may have an advantage vis-à-vis India. Alternatively, last month, a civil society, comprising 32 organisations and the Samyukt Kisan Morcha, urged Prime Minister Narendra Modi to not join IPEF’s trade pillar, as it would enable the entry of agritech firms into India. They said that IPEF is non-transparent and almost unilaterally designed by the US.
The story so far
• IPEF has four pillars: trade, supply-chain resilience, clean economy, and fair economy (tax and anti-corruption)
• India pulled out of the trade pillar last year and has an ‘observer’ status.
• Discussions among policymakers include whether India should join the trade pillar now, participate in negotiations, or rather contemplate joining it at a later stage when negotiations are concluded.
• Commerce department to soon take the final call to join trade pillar or not, seeks PMO
approval.
Indian economy to be the fastest growing in FY24, says World Bank
Date: 06th Jun, 2023
Source: Business Standard
The World Bank said India would remain the fastest-growing economy in terms of both aggregate and per capita gross domestic product (GDP) among the largest emerging market and developing economies. It retained India’s FY24 growth forecast at 6.3%. “Greater than expected resilience in private consumption and investment, and a robust services sector in India, is supporting growth in 2023.
Growth is projected to pick up slightly through FY26 as inflation moves back toward the midpoint of the tolerance range and reforms payoff,” the multilateral development bank said in its “Global Economic Prospects” report. In its India Development Update released in April, the World Bank had revised its growth forecast for India by 30 basis points to 6.3 per cent for FY24. The World Bank said India’s growth in early 2023 remained below what it achieved in the decade before the pandemic as higher prices and rising borrowing costs weighed on private consumption. “However, manufacturing rebounded into 2023 after contracting in the second half of 2022, and investment growth remained buoyant as the government ramped up capital expenditure. Private investment was also likely boosted by increasing corporate profits. Unemployment fell to 6.8 per cent in the first quarter of 2023, the lowest since the onset of the Covid-19 pandemic, and labour force participation increased.” India’s headline consumer price inflation has returned to within the central bank’s 2-6 per cent tolerance band,” it added. Data released by the National Statistical Office last week showed GDP growth of 6.1 per cent in the March quarter and 7.2 per cent in FY23, beating analysts’ expectations. The robust GDP data and encouraging signs of high frequency indicators led to a spate of upward revisions in FY24 GDP growth forecasts by analysts. While SBI revised its growth projection for FY24 to 6.7 per cent from 6.2 per cent, JP Morgan revised it to 5.5 per cent from 5 per cent estimated earlier. The World Bank said after growing 3.1 per cent last year, the global economy is set to slow substantially in 2023, to 2.1 per cent, amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4 per cent. “Global growth could be weaker than anticipated in the event of more widespread banking sector stress or if more persistent inflation pressures prompt tighter-than-expected monetary policy,” it cautioned.
India's GDP grows 6.1 per cent in Q4, FY23 growth pegged at 7.2 per cent
Date: 01st Jun, 2023
Source: Economic times
Beating analyst estimates,
India's gross domestic product (GDP) grew at 6.1 per cent in the
last quarter of the previous fiscal. Further, the Centre now estimates the
overall growth rate of FY23 to be 7.2 per cent, MOSPI data showed Wednesday.
The Reserve
Bank of India (RBI) estimated Q4FY23 real GDP growth to be 5.1
per cent while SBI Research expected a growth rate of 5.5 per cent. As per a
Reuters poll, the Indian economy was expected to grow at 5 per cent in the
January-March quarter on a year-on-year basis, due to steady urban demand and
government spending.
In FY23,
the economy grew at 13.1 per cent, 6.2 per cent and 4.5 per cent in Q1, Q2 and
Q3 respectively, on an annual basis.
In the March quarter, India's
manufacturing sector output rose 4.5 per cent on-year, compared to 1.1 per cent
contraction in the previous quarter while farm output rose 5.5 per cent
compared to 3.7 per cent growth in the same period.
As per
provisional estimates of Gross Value Added (GVA), manufacturing sector grew by
1.3 per cent in FY23 after growing 11.1 per cent in FY22 while agriculture,
forestry and fishing grew at 4 per cent in FY23 against 3.5 per cent growth
seen in the fiscal before.
The median forecast from a
Reuters poll of economists hinged on the robust performance of services like
travel and retail, and the boost given to demand by falling food prices and the
drop in oil prices globally. Trade, hotels, transport, communication &
services related to Broadcasting grew 14 per cent in FY23 after growing 13.8
per cent in FY22.
During the
March quarter, high-frequency indicators showed that a rise in urban incomes
had boosted sales of expensive cars, Apple mobile phones, and air travel. A
fall in food, crude oil and raw material prices boosted demand for services
such as air travel and manufactured items like cars and mobile phones.
"India's
Jan-Mar23 GDP growth posted a sharp upside surprise, amongst the strongest lift
for the quarter in Asia and displaying resilience in the face of negative terms
of trade shock as well as a difficult global geopolitical backdrop last year.
There was broad-based lift amongst the segments, especially stronger outturns
by farm and services output. On the expenditure end, capital formation was one
of the key support pillars, while private consumption grew at a more moderate
pace. A strong GDP beat will provide the central bank headroom to extend its
pause in June," said Radhika Rao, economist at DBS Bank.
Economists,
however, warned that the global slowdown and volatility in financial markets
pose a risk to exports and the growth outlook in coming quarters.
"The
GDP data does validate the recent growth optimism for India, despite global
headwinds. This is not to say that the growth outlook is without risks -
particularly in regards to the monsoon progress and recession risks globally.
We expect GDP growth at 5.8%-6% for FY24 with some upside to this forecast now
emerging," said Sakshi Gupta - Principal Economist - HDFC Bank.
Owing to a
strong momentum seen in the last two quarters of the previous fiscal, RBI
governor Shaktikanta Das said that the central bank
expected growth for FY23 was expected to exceed 7 per cent. The Indian economy
grew at 9.1 per cent in FY22.
“It
initially appeared in the third quarter that there was a pent-up demand which
was supporting the economic activity, but all the economic indicators in the
fourth quarter of last financial year show that economic activities sustained
momentum,” Das said at a CII event on May 24.
"In
fact, all the high-frequency indicators, around 70 of them, which we monitored
in the RBI, almost in all of these high-frequency indicators, the momentum was
maintained in the fourth quarter. So therefore, we should not be surprised if
the growth is slightly more than 7 per cent," he said.
The Indian
economy has emerged as an outlier after maintaining its growth rate as among
the highest in comparison to the other major nations following the breakout of
the Covid-19 pandemic. Ratings agency S&P Global recently said that the
Indian economy is set for real GDP growth of about 6 per cent in 2023, which
compares favourably with emerging market peers amid a broad global slowdown.
Investment
and consumer momentum will underpin solid growth prospects over the next 3-4
years.
Bridgestone looks to expand retail footprint in India
Date: 29th May, 2023
Source: Economic Times
Tyre maker Bridgestone is looking to expand its retail footprint in India by 20-25% this year and is aiming to grow higher than the industry's growth, a top company executive has said. Bridgestone India at present has over 3,200 dealerships across 1,300 cities and towns in India. Bridgestone India, which is a subsidiary of Japanese multinational tyre manufacturer Bridgestone Corporation, has a well-diversified portfolio, mainly of radial tyres which cater to OEM as well as replacement segments.
"Bridgestone India has been increasing its market penetration over the last few years. In 2022, we increased our retail footprint by 11%, expanding to an additional 218 towns. This year we are looking to increase our overall retail network by 20-25%," Bridgestone India Managing Director Stefano Sanchini told PTI in an interaction. The company is expanding its distribution network to enhance the coverage across tier-III/IV cities giving it a larger footprint in the aftermarket for automotive tyres that accounts for over 25 million tyres, he said. "We aim to retain our leadership in this segment. The OE market has shown revival last year and is expected to further grow in 2023. Our investments towards increased capacities and capabilities will help us fulfil the market needs," Sanchini said.
India’s forex reserves comfortable for next 5-6 years, FTAs to generate surplus: Piyush Goyal
Date: 25th May, 2023
Source: Economic Times
Commerce and industry minister Piyush Goyal on Wednesday said that India’s free trade
agreements (FTA) will help generate surpluses and that the country is “comfortable” for the next
five-six years in its foreign exchange position. On the aim to achieve $1 trillion each of goods and
services exports by 2030, Goyal said: “I have no doubt we are going to achieve it… our import
basket largely gets affected by oil that will have its own trajectory possibly a lowering trajectory
or a downward trend in the years to come Whereas our export basket has all the things that the
world desires.” India’s overall exports, including both goods and services, increased 13.84% to
$770 billion in FY23 as against $676 billion in FY22. The trade deficit was a record $266.78 billion
in the year. Goyal was addressing the annual session of the Confederation of Indian Industry
(CII).“So we will be an economy which will be reporting surpluses in the years to come.
And these free trade agreements will only accelerate that process will help us generate surpluses,
help us keep a strong economy,” he said. Goyal said that everybody wants India to fast track an
agreement. “The free trade part is separate. They want an FTA which is fast track agreement,” he
said. India is negotiating trade pacts with the UK, Canada, European Union and the EFTA which
comprises Switzerland, Norway, Liechtenstein and Iceland. Emphasising that FTAs are a twoway traffic, he said: “I feel very sad when sometimes I'm told we want access in the European
market. But please don't allow them to come into our mind”.
On India’s foreign exchange situation, the minister said: “In the worst case, with whatever
difficulties anybody may have, India is comfortable for the next five or six years given our forex
reserves today to be able to meet our foreign exchange requirements.” He also asked if the
amount of foreign exchange reserves should be based on the number of months import, or “we
should be looking at our trade deficit or our overall current account deficit and valuing our
reserves juxtaposing it to what we will need in the future”. Noting that there was a sharp spike
in inflation last year because of the Ukraine crisis, Goyal said India is now back on track in a short
period of time, much beyond what many had expected and that for the first time in many years
businesspersons are seeing interest rates in other countries and developed countries that are
almost at par with Indian interest rates.
India's forex reserves soar to $599.53 bln, highest since early June.
Date: 19th May, 2023
Source: Economic Times
India's foreign exchange
reserves experienced a continuous increase for the third week in a row,
reaching $599.53 billion as of May 12. This level represents the highest amount
since early June, according to the Reserve Bank of India's statistical
supplement released on Friday. The reserves saw a rise of $3.55 billion
compared to the previous week, following a total increase of $11.7 billion over
the preceding two weeks.
To prevent
significant fluctuations in the rupee, the central bank intervenes in
both the spot and forwards markets. The changes in foreign exchange reserves
can also be influenced by gains or losses in valuation. According to a Reuters report, several foreign banks that
hold a bullish outlook on the rupee are being challenged by the Reserve Bank of
India'`s ongoing intervention efforts to bolster its reserves.
During the week corresponding to the forex reserves data, the
rupee experienced a decline of 0.4%, primarily influenced by the overall
strength of the dollar index. Throughout the week, the rupee traded within the
range of 81.6900 to 82.2250 against the dollar.
In the following week, the rupee faced a more significant
decline of 0.6%, marking its most substantial drop in two months. By the end of
the week, the local unit concluded at 82.66 against the dollar on Friday.