News, leads and analysis related to India’s trade and all that’s happened on the policy front during the month of January 2017
GDP growth
Rocky road ahead?
Demonetisation seems to have claimed its first casualty. Just a month after the government announced demonetisation of Rs.500 and Rs.1,000 currency notes, an initiative to curb black money menace in India, the Reserve Bank of India (RBI) in its bi-monthly policy review meeting acknowledged the adverse impact of the demonetisation initiative on the Indian economy and cut its forecast for the GDP growth this financial year from 7.6% to 7.1%. However, not all is lost! Executive Director of RBI, Michael Patra, in a post-policy release briefing stated that the impact was temporary and the loss would not be more than 15 basis points (0.15%).
Early, in December, CRISIL too lowered its GDP growth forecast for the current fiscal by as much as 100 bps – from 7.9% to 6.9%. Fitch Ratings also revealed a similar projection. Its initial GDP growth forecast for FY2017 was 7.4%, which is now down to 6.9% – its revised projection for FY2018 and FY2019 now stands at 7.7%, which is 0.3% down from its earlier prediction. Interestingly, the Fitch report states that “Time spent queueing in banks is also likely to have affected general productivity. The impact on GDP growth will increase the longer the disruption continues.”
RBI Governor Urjit Patel-led six-member Monetary Policy Committee (MPC) too revised the expected gross value addition (GVA) for FY2017, bringing down the forecast from 7.4% to 7.1%. Even Asian Development Bank (ADB) followed suit by reducing its growth forecast for India for FY2017 from 7.4% to 7%. There is a silver lining though as ADB believes that the adverse impact of demonetisation is temporary and as such held its GDP forecast for the next fiscal at 7.8%. However, many critics still believe that a turnaround may take a little longer. The government has been assuring a quick solution for the cash crunch, but looks like the damage is already done!
Demonetisation has made 86% of India’s currency in circulation illegal by banning Rs.500 and Rs.1,000 denominations. While consumer sentiment still seems to be in favour of demonetisation, trade figures indicate that all is not well. The Nikkei India Composite PMI fell to 49.1 in November 2016 from 45-month high of 55.4 in October 2016, indicating a slowdown in purchases. On the consumer side, the motor vehicle industry has already felt the impact with sales numbers for November declining sharply for Honda Cars India Ltd. and Mahindra & Mahindra. Both companies attributed the decline to the disruption caused by demonestisation. Two wheeler sales also fell for the first time in a year.
Estimates suggest that the cash crunch may continue for a few months. The Indian economy, it seems, will continue to struggle in the short term before picking up steam.
Iron & Steel Products
Steely protection
Despite India’s iron and steel production growth rate being highest among major producers, the domestic iron and steel industry, it seems, needs protection. Directorate General of Foreign Trade (DGFT) has extended the minimum import price (MIP) on 19 iron and steel products for another two months i.e. till February 4, 2017. The initial MIP was granted from February to August (2016), which was later extended till December. Major Indian steel producers had lobbied the government to protect local manufacturers from cheap sourcing destinations like China. But can it make our steel industry more efficient?
FDI inflow
No mean feat
India seems to have established itself as a popular FDI destination in the world. According to Department of Industrial Policy and Promotion (DIPP) data, the total FDI equity inflow into the country between April 2000 and September 2016 crossed the $300-billion mark. Investors from across the globe invested $310.13 billion in India during the period. While Mauritius continues to be the biggest source of FDI inflows into the country (India has received investments worth $101.76 billion from Mauritius since April 2000), it is the services sector that has attracted the largest amount of FDI with total inflows during the period standing at $56,08 billion (accounting for 18% share). The other big sources of FDI into India have been Singapore, UK, Japan, USA and Netherlands. Experts believe that the trend will continue in the near future. Need we say more!
Wheat import
A boon or a bane?
In a year that has seen a bumper wheat crop, the government’s recent decision (in December, just before the start of the sowing season) to make imports of wheat duty free has sparked fear and frustration among wheat farmers around the country. While the government hopes to bring the domestic price situation back to normal by supplementing stocks through imports, farmers have expressed concern that foreign wheat will not only prove to be competition but will also add to the woes of cultivators. It’s worth noting that as on December 16, 2016, area under wheat cultivation in the country had increased by 6.99% over the last year.
Natural gas Deal
It’s getting complex
India’s Oil and Natural Gas Corporation (ONGC) and Russia’s Gazprom are in early stages of a complicated natural gas swap as an alternative to building the world’s longest and most expensive natural gas pipeline (costing over $25 billion) between India and Russia. As per the new deal (if it goes through), Russia would supply natural gas to China. And in turn, China would provide equivalent gas to India from its share from Myanmar (the country already supplies natural gas to China through an existing pipeline). The new plan is definitely cost-effective, but would require a go-ahead from Myanmar and China. Now, that’s what makes this a complex negotiation. For uninitiated, recently, Indian PM Narendra Modi had spoken about converting India into a natural gas-based economy and lowering dependency on fossil fuels. This would mean an increase in both imports and domestic production. India’s total liquefied natural gas imports have already increased from 9.03 bcm (billion cubic metre) in FY2007 to 21.31 bcm in FY2016.
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