FM claims recovery; 8 core sectors shrink to disprove it

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October output declines 0.6% after 8 months

FM claims recovery; 8 core sectors shrink to disprove it
Finance minister P Chidambaram on Monday saw signs of economic recovery and forecast 5 per cent GDP growth this year on the back of improved performance of various parameters.

But data for the eight core infrastructure sectors gave a different picture, as there was a 0.6 per cent contraction in October.

“With the recent improvements in some important sectors like manufacturing, better export performance and measures taken by the government, the economy can be expected to show further improvement. We expect the economic growth to be 5 per cent in 2013-14,” Chidambaram told reporters.

Monthly data for the eight core infrastructure sectors that account for 40 per cent of India’s industrial output contracted by 0.6 per cent in October. The performance was poor in coal and oil and gas sectors. The core sectors as a whole had grown by a robust 8 per cent in September.

Chidambaram did not comment on the October core sector performance, saying that he had not seen the data.

On analysing the second quarter GDP growth, revenue collections, exports, current account deficit and other parameters, he said, “There is an uptick in almost every sector in the second quarter.

Clearly, the balance of payments (BoP) position has improved significantly. The current account deficit (CAD) position has improved significantly quarter on quarter and half-year on half-year. The trade deficit has also narrowed.”

RBI released BoP data for the second quarter, which indicated CAD dropped to $5.2 billion, or 1.2 per cent of GDP, in the second quarter due to a sharp decline in gold imports and a turnaround in exports growth. CAD stood at $21 billion (5 per cent of GDP) in the corresponding quarter of last year..

Chidambaram said he expected more inflows under a dollar swap scheme that had already beaten expectations by bringing in $34.33 billion so far.

According to data, the output growth in the eight core industries in April-October was a mere 2.6 per cent, against 6.8 per cent in the same period last year.

The October index of industrial production data will be released in the second week of December. Crisil’s chief economist D K Joshi said the performance of the core sector was likely to remain subdued in the coming months as well.

Natural gas output fell by 13.6 per cent in October. Coal production declined by 3.9 per cent. Crude oil output was also poor with 0.8 per cent fall. Petroleum refinery production shed 4.8 per cent.

But fertiliser did better by 4.1 per cent and steel by 3.5 per cent. Cement and power generation posted marginal growth of over 1 per cent each. Chidambaram said agriculture and forestry had shown significant growth in the second quarter and within industry there was a ‘major uptick’ in electricity, gas and water supply.

The services sector saw some decline in the second quarter but there was improvement in some sectors as compared to the April-June quarter. “If the services sector shows brisk growth in the third and fourth quarters, it will help the recovery,” he said. “These are good signs,” he said and expressed confidence that CAD would be below the projections and fiscal deficit would be reined in at 4,8 per cent of GDP this year.

He said PMI for manufacturing crossed 50 for the first time in October after remaining below 50 in the preceding four months. This indicated that industrial output was on the road to recovery in the coming months.

He said foreign exchange reserves, which had dropped to $274 billion on September due to global currency volatility, were now swelling and had grown by $13 billion to $286.26 billion.

He blamed state governments for high wholesale and retail inflation stemming from double-digit food inflation. It was for the state governments to check hoarding and marketing and movement and supply of food items. He, however, admitted that inflation was a difficult issue now.

Quoting a newspaper report, he said Rs 13,500 crore worth of fruits and vegetables were wasted every year. If only prompt action were taken, including amending the APMC Act by states, there would be no waste and the produce would have reached the market, with a positive impact on inflation.

He was confident of achieving the Rs 40,000 crore targeted revenue from disinvesment and spectrum sale. He expected revenue collections to pick up in the second half as happened every year.

India Ratings & Research believes that given the tentative nature of recovery in global demand, not all export-oriented Indian firms will benefit evenly. The key drivers of this asymmetric growth are divergent expectations of growth trends in developed markets and emerging markets, uncertainty over quantitative easing in the US and prices of precious metals.

Ind-Ra expects the tentative revival of global demand to benefit pharmaceutical companies the most, followed by textile and IT companies. It expects India’s engineering export growth to remain muted. Gems & jewellery exporters are unlikely to benefit significantly due to the relatively lower prices of precious metals.

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