7/27/2019 SEB report: No major improvement in sight in India

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India: Signs of stabilisation but little scope for majorimprovement

WEDNESDAY

OCTOBER 16, 2013

GDP growth decelerated to 4.4 per cent year-on-year in the second quarter;weaker than expected(Chart 1). The deceleration was widespread but there were signs ofstabilisation in Q3. We have revised our already below-consensus forecast downward;we expect GDP to climb 4.7 per cent in 2013 and 5.5 per cent in 2014. In 2015,growth will accelerate to 6.0 per cent.

New central bank governor Raghuram Rajan has launched a reform package focusingon financial sector liberalisation. India has been hard hit by worries about Fedtapering, withsubstantial negative effects on the rupee and the stock market, butcentral bank reforms have stabilised financial markets for the time being. (Chart 2)However, the government has not done its part, having introduced extended foodsubsidies and a land acquisition bill that could increase the time taken to acquire land.

In August, the purchasing managers index (PMI) inmanufacturing fell below 50 forthe first time since 2009 but recovered somewhat to 49.6 in September. (Chart 3)

Industrial production shows signs of stabilisation, increasing slightly year-on-year inJuly and August.(Chart 4)

Car sales have edged up recently, increasing 0.7 per cent year-on-year in September.(Chart 5)

Exports have recently performed strongly, increasing more than 10 per cent year-on-year for three consecutive months. Imports have performed poorly, falling more than 18per cent year-on-year in September. (Chart 6) The diverging trends for exports andimports pushed the trade deficit to its lowest level for 30 months in September.

The current account deficit widened in Q2.(Chart 7) However, the recent markedimprovement in the trade balance is expected to decrease the deficit in Q3.

Wholesale price index (WPI) inflation has accelerated in recent months; hitting aseven-month high of 6.5 per cent in September.A substantial increase in food price

inflation has contributed.CPI inflation remains elevated, at around 10 per cent. (Chart 8)

The Reserve Bank of India (RBI) hiked its key interest rate by 25 basis points to 7.5er cent in Se tember. Chart 9 We ex ect another rate hike before ear-end.

Andreas Johnson

SEB Economic Research

+46 8 763 80 32

andreas.johnson@seb.se

Key data

Percentage change

2012 2013 2014 2015

GDP* 5.1 4.7 5.5 6.0

Inflation (wholesale)* 7.5 5.9 6.0 6.0

USD/INR** 54.9 65.0 60.0 55.0

* Percentage change. ** End of period.

Source: Macrobond, Ministry of Commerce and Industry, SEB.

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