BOMBAY, 25 June — With the financial results of most of the Indian companies being declared, it is time to take a look at the report card of the economy. With the evidence pointing toward an Indian economy slowdown, this fact was further reinstated by the latest figures from the Indian Ministry of Commerce.
The figures revealed that the infrastructure sector has registered a negative growth rate of 0.5 percent in May this year against an impressive 8 percent growth recorded in the same month last year. Barring, electricity and coal, all four infrastructure industries — crude petroleum, petroleum refinery products, cement and steel — posted negative growth rates.
Gross fiscal deficit is likely to be between 5.5 and 6 percent for the whole year. This means that there would not be any improvement in the deficit picture during the current year in relation to the last year, which was 5.6 percent. This is perhaps the single-most important indicator of the health of government finances. The outlook unfortunately is bleak, if not worse, on this count.
Another indicator of a slowing economy are falling tax collections. And that is precisely what has happened. Indirect tax collections in April and May fell by Rs. 1,400 crore from the same period last year. Receipts from import duties totaled Rs. 6,000 crore in the April to May period compared with Rs. 7,500 crore a year ago, while excise duties or production tax collections rose marginally by one billion rupees.
Oil imports fell by 7.60 percent in April to $1.20 billion while non-oil imports dropped by a significant 10.84 percent in April to $2.77 billion.
Industrial growth too slumped to 2.7 percent from 6.5 percent in the same month a year earlier. Sluggish domestic demand and a slowing global economy coupled with expected slower exports, lack of spending on infrastructure and political uncertainty have taken a toll on industrial output growth.
Another disturbing fact that has emerged is that the oldest industry in India, textiles, has been badly hit. Textiles account for one-third of India’s total export basket.
India’s cotton yarn exports, which account for nearly 30 percent of the total textile basket, fell to 213.81 million kg in the first five months of 2001 from 241.64 million kg in the same period of the previous year. Total cotton textile exports are down by 20 percent and despite an improvement in demand annual earnings will be down by 10 to 15 percent.
The slowdown in the US has hit sales but traders are confident that demand would grow when the holiday season is over and people start placing orders around September which is generally the peak season for textiles. But this alone may not help the industry to make up for the losses incurred till now. Real good news would be when mills start booking for the first quarter of 2002.
Then there’s India’s latest inflation rate. The annual inflation rate stood firm at 5.52 percent for the week ended June 2. The overall picture is not as bad as it appears, but the two imponderables will be fuel prices and the effect of the recent cut in bank rate and CRR in the coming year. Average inflation for the current year is likely to be around 5.5-6 percent.
The good news is that total foreign exchange reserves as on June 8, 2001 rose by $95 million to $43,007 million ($42,912 million in the previous week), as per figures released by the Reserve Bank of India. Foreign exchange reserves for the year (from June 2000) increased to $6,152 million which is really quite impressive.
But the concern is that the Indian rupee is weakening against the US dollar. Over the past few week, there has been a fall in the rupee due to dollar demand from banks and corporates, but it recovered a bit on dollar sales by exporters.
Analysts say that the currency was expected to further depreciate in the coming months as most of the South Asian currencies were depreciating against the US dollar. The deterioration of India’s competitive position against these countries might lead to a further depreciation of the rupee.
As per Fitch, the international rating agency, the economic growth of India for the current fiscal is expected to fall below the 6 percent level with key sectors failing to achieve respective growth projections, thanks to the US slowdown, Gujarat earthquake and extensive drought in the northwestern parts, according to a report.
It further warned that given the global market situation, “if adequate domestic demand is not created, the industrial sector cannot expect to grow at the desired rate in the coming years.”
And there is some news from the import front too. Imports of 300 sensitive items, after lifting of quantitative restrictions, has dipped by 11 percent during April-May 2001 mainly due to a fall of 28 percent in imports from China. While imports from Egypt, Ethiopia, Indonesia, Malaysia, Myanmar, Nepal, the Philippines, Tanzania and Vietnam increased, there was a marked decrease in imports from China which was feared to be dumping some of these items.
There are other economic parameters, but what is quite apparent is that there is most certainly a slowdown of the economy, and unless this is reversed, the outlook could be grim. But the fundamentals are good and India should hopefully see better growth next year.