Business Today

Manhole Ahead, Mr PM Sir

The Indian economy looks more vulnerable in the coming months and quarters than is made out to be.
Josey Puliyenthuruthel   Delhi     Print Edition: May 11, 2014
Josey Puliyenthuruthel
Josey Puliyenthuruthel

A slowing GDP. Inflation on the uptick. Contracting exports. Sluggish industrial output. An appreciating currency. Calls for monetary easing, lower interest rates, and a government-led stimulus getting louder. Sounds familiar, right? Just that it is China that we are talking about. A decelerating China - the world's No. 2 economy grew at its slowest, 7.4 per cent, in six quarters in the January-March months - is not good news for a world still dealing with the long tail of the 2008 financial meltdown and subsequent recession in parts of the western world.

That Beijing is trying to ease the economy into "a balanced and sustainable growth path", as the International Monetary Fund (IMF) noted in its World Economic Outlook earlier in April, is of little cheer to analysts and economists. The question is whether China will be able to keep its growth high enough to prevent its internal debt situation - private debt in a nation traditionally of savers is at nearly two times GDP; in India it is more like one-eighth - from dragging it down.

And, now a new risk is emerging on the horizon: China's exports, about one-fourth of that country's $9.4 trillion GDP, have suddenly plummeted. To be sure, some of it is due to the appreciating renminbi but exporters there - as well as in India - are talking about softening demand in export markets.

Odd, as it stacks up against the IMF's prediction of stronger global growth this year from the last, which is expected to be led by the US's 2.75 per cent. There may be a clue in a seldom-watched leading economic indicator. The Baltic Dry Index, built from the cost to move freight such as coal, grain, and iron ore across oceans, has shed nearly 60 per cent since its end-year holiday season peak in December 2013. Futures on the index are down, too - indicating the outlook for global trade is not in the positive territory. Obviously, it's not a clear shot from where we sit, but the Indian economy looks more vulnerable in the coming months and quarters than is made out to be. A bad monsoon, as private meteorological agency Skymet predicted recently, in a world of slowing global demand, for instance, can lead to all kinds of things like a fisc out of control and a ratings downgrade - a nasty surprise for the next Indian prime minister.

Yet, as the general elections roll on, the markets continue to be the punter's delight. In the latest edition of the BT Morningstar Survey of fund houses, nine of 10 respondents expect GDP growth to rise to between five and six per cent in a year's time from a sub-five per cent expected for fiscal year 2014. They predict that the rupee will strengthen, Sensex will trade between 23,000 and 25,000, and foreign inflows will rise. An overwhelming majority predict a National Democratic Alliance government and in the event of a fractured mandate, they predict the markets will fall 15 per cent at least. Key to that outcome is how Uttar Pradesh votes. Shweta Punj travelled to the state with a simple question: what holds back a state that sends 80 of the 543 elected members of the Lok Sabha? The big and meaty read for you this issue, of course, is on the cover. In the high-decibel, with-the-herd world we live in, we often miss subtle movement even if it is big.

In the Rs 250,000-crore telecom services market, Bharti Airtel and challenger-inwaiting Reliance Jio are seen as the two big players to watch out for. The change at Vodafone, India's largest wholly-owned MNC unit with revenues of Rs 37,130 crore, and how it has slowly glided into a strong position has not been noticed. Until now. Read Sunny Sen's well-chiselled story on why Vodafone is the telecom operator to watch out for.


 

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