India Economy

Economy Alerts

Compiled by CRISIL Economy Research | Updated on September 16, 2018 Published on September 16, 2018

Steady pick-up in industrial activity

IIP notched 6.6 per cent growth in July, partly due to the low base of last year when industrial activity was hit by the GST move. The manufacturing and electricity sectors continued to be the primary drivers. A low-base effect and healthy consumption demand are buoying the manufacturing sector. Low-base effect helped spike production of consumer durables. Production of infrastructure, construction and primary goods also showed steady pick-up. The core infrastructure index (coal, crude, natural gas, refinery products, fertilisers, steel and cement) posted a healthy growth of 6.6 per cent in July.

Retail food inflation eases

CPI-based inflation fell to 3.7 per cent in August from 4.2 per cent in July — below the RBI’s medium-term target of 4 per cent — helped by a decline in food inflation. Core inflation continues to drive overall inflation despite easing for the third consecutive month. In the coming months, headline inflation could rise as pressures mount. An uptick in food inflation due to the upward revision in MSPs, and increase in housing inflation due to revision in the HRA for State employees could push up the headline number. Also, higher crude prices and the sharp depreciation of the rupee are likely to exert upward pressure.

Crude oil prices push CAD to five-year high

India’s current account deficit (CAD) increased to 2.4 per cent of GDP in the first quarter of FY2019, compared with 1.9 per cent in the previous quarter and 2.5 per cent in the same quarter of last year. At $15.8 billion, CAD is at the highest since April-June 2013. The increase was driven by a rise in goods trade deficit due to higher oil imports. However, a rise in services trade surplus and remittances from abroad helped control further widening. Data indicates goods trade deficit will widen further as growth in imports continues to outpace growth in exports. In July-August, exports rose 18 and imports 27 per cent.

Rupee continues to weaken

The rupee continued to weaken, sinking to an all-time low of 72.8/$ on September 12. So far, it has depreciated 3.4 per cent over August. The weakness has three causes — rising CAD, contagion worries from the crisis in Turkey and the strengthening dollar. The emerging market currency sell-off triggered by the Turkish crisis appears to have penalised countries with higher CAD. Given that India’s CAD in the first quarter of FY2019 rose to the highest since the first quarter of FY2013, the rupee bore the major brunt of the sell-off. Year-to-date, the rupee has plummeted 13 per cent on average against the dollar.

Impact of monsoon benign so far

Rainfall at the all-India level has been normal at 8 per cent, below the long-period average, till September 12. However, six key kharif-growing States — Andhra Pradesh, Punjab, West Bengal, Bihar, Haryana and Gujarat — have seen rainfall deficiency on a cumulative basis. While Punjab and Haryana have adequate irrigation cover as an offset, West Bengal and Gujarat are suffering more for the lack of it. Among crops, sowing of groundnut (Gujarat is one of the largest producers) is under pressure. Contrastingly, rice and pulses have seen an increase in sown area compared with the previous year.

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