Suresh Prabhu

Business Sphere - - CONTENTS - By Our Cor­re­spon­dent

Min­is­ter of Com­merce and In­dus­try

There is some­thing to cheer about as far as econ­omy is con­cerned. The in­dus­trial pro­duc­tion af­ter a long gap soared to 17-month high of 8.4 per cent in Novem­ber. The jump in fac­tory out­put was mainly on ac­count of per­for­mance of the man­u­fac­tur­ing sec­tor which has suf­fered on ac­count of the twin im­pact of de­mon­e­ti­za­tion and roll out of the Goods and Ser­vices Tax (GST). This was ac­com­pa­nied by over 12 per cent in­crease in ex­ports dur­ing De­cem­ber. How­ever, the eu­pho­ria gen­er­ated by the ro­bust per­for­mance of fac­tory out­put was damp­ened by Con­sumer Price In­dex (CPI) num­bers which showed firm­ing up of the re­tail in­fla­tion to 17-month high of 5.2 per cent in De­cem­ber. The con­tin­u­ous rise in con­sumer in­fla­tion, it is feared, may prompt the Re­serve Bank to hold on the in­ter­est rate as it is man­dated to keep in­fla­tion within 4 per cent. The RBI is sched­uled to present its mone­tary pol­icy re­view on Fe­bru­ary 7. The re­view it­self will be an­nounced within days of the pre­sen­ta­tion of the Union Bud­get on Fe­bru­ary 1. Ac­cord­ing to the In­dex of In­dus­trial Prod­uct (IIP) data, the man­u­fac­tur­ing sec­tor, which con­sti­tutes 77.63 per cent of the in­dex, recorded an im­pres­sive growth of 10.2 per cent in Novem­ber as com­pared to 4 per cent a year ago. Among the sec­tors, phar­ma­ceu­ti­cals, com­puter, elec­tronic and op­ti­cal prod­ucts and au­to­mo­biles posted good per­for­mance dur­ing the month. Cap­i­tal goods out­put, which is a barom­e­ter of in­vest­ment, too grew at a higher rate of 9.4 per cent in Novem­ber as against 5.3 per cent a year ago. As re­gard re­tail in­fla­tion, it crossed the RBI's com­fort level and rose to 5.21 per cent in De­cem­ber on rise in prices of food items, egg and veg­eta­bles, dash­ing hopes of in­ter­est rate cut in the near fu­ture. The re­tail in­fla­tion, based on the CPI, was 4.88 per cent in Novem­ber 2017. In De­cem­ber 2016, it was 3.41 per cent. The RBI has been asked by the gov­ern­ment to keep in­fla­tion at 4 per cent, plus or mi­nus 2 per cent; and its rise be­yond the com­fort zone will put pres­sure on the cen­tral bank to de­cide against in­ter­est rate cut. As per data re­leased by the Cen­tral Statis­tics Of­fice (CSO), in­fla­tion for the food bas­ket in­creased to 4.96 per cent in De­cem­ber from 4.42 per cent in the pre­ced­ing month. The pre­vi­ous high of CPI-based in­fla­tion was recorded at 6.07 per cent in July 2016. Sim­i­larly, the pre­vi­ous high in­dus­trial out­put growth was recorded at 8.9 per cent in June 2016. Data sug­gests that eggs, veg­eta­bles and fruits be­came costlier. The fac­tory out­put, mea­sured in terms of IIP, grew 5.1 per cent in Novem­ber 2016. Mean­while, the IIP growth for Oc­to­ber 2017 has been re­vised down­wards to 2 per cent from the pro­vi­sional es­ti­mates of 2.2 re­leased last month. Con­sumer non-durables, which are mainly fast mov­ing con­sumer goods (FMCG), showed an out­put growth of 23.1 per cent in Novem­ber 2017 as

against 3.3 per cent in the com­pa­ra­ble month of 2016. How­ever, the min­ing sec­tor pro­duc­tion growth slowed to 1.1 per cent dur­ing the said month from 8.1 per cent a year ago. Elec­tric­ity gen­er­a­tion growth too slowed to 3.9 per cent in Novem­ber from 9.5 per­cent a year ear­lier. Pro­duc­tion growth of con­sumer durables, mainly white goods like TVs, re­frig­er­a­tors and wash­ing machines, also slowed to 2.5 per cent from 6.8 per cent. As per the use-based clas­si­fi­ca­tion, the growth rates in Novem­ber 2017 are 3.2 per cent in pri­mary goods, 5.5 per cent in in­ter­me­di­ate goods and 13.5 per cent in in­fra­struc­ture/ con­struc­tion goods. In terms of in­dus­tries, 15 of the 23 in­dus­try groups in the man­u­fac­tur­ing sec­tor have shown pos­i­tive growth dur­ing Novem­ber 2017 as com­pared to the same month a year ago. The data showed that the in­dus­try group 'Man­u­fac­ture of phar­ma­ceu­ti­cals, medic­i­nal chem­i­cal and botan­i­cal prod­ucts' has shown the high­est pos­i­tive growth of 39.5 per­cent, fol­lowed by 29.1 per cent in com­puter, elec­tronic and op­ti­cal prod­ucts and 22.6 per­cent in 'man­u­fac­ture of other trans­port equip­ment'. The other pos­i­tive news was with re­gards to the ex­ports which wit­nessed an im­pres­sive in­crease dur­ing De­cem­ber. Pro­pelled by en­gi­neer­ing goods and petroleum sec­tors, In­dia's ex­ports rose 12.36 per cent to USD 27.03 bil­lion dur­ing the month. The ris­ing ex­port, how­ever, was ac­com­pa­nied by trade deficit which touched a 3-year high fig­ure. As per the data re­leased by the com­merce min­istry, the trade deficit or dif­fer­ence be­tween im­ports and ex­ports was USD 14.88 bil­lion, up about 41 per cent year-on-year. It was mainly on ac­count of surge in im­ports, which rose 21.12 per cent to USD 41.91 bil­lion on in­creased in­bound ship­ments of crude oil and gold. One can, how­ever, still take com­fort from the fact that the ex­ports, as as­serted by FIEO, could sur­pass USD 300 bil­lion mile stone dur­ing the cur­rent fi­nan­cial year end­ing March. "Ex­ports have been on a pos­i­tive tra­jec­tory since Au­gust 2016 to De­cem­ber 2017 with a dip of 1.1 per­cent in the month of Oc­to­ber 2017," the Com­merce Min­istry said in a state­ment. Ex­porters' body FIEO said that pos­i­tive growth for the se­cond month in a row, af­ter a fall in Oc­to­ber, shows re­silience of the In­dian ex­porters. "Since we have al­ready achieved ex­ports worth USD 224 bil­lion in first 9 months of the fis­cal and global trade growth re­mains ro­bust in 2018, we are on our course to achieve the mile­stone of USD 300 bil­lion in 201718," said FIEO Pres­i­dent Ganesh Ku­mar Gupta. The ex­ports had to­taled USD 274.64 bil­lion in 2016-17, up from USD 262.29 bil­lion in the pre­ced­ing in­dus­try. As per the com­merce min­istry data, ex­ports of en­gi­neer­ing goods as well as petroleum prod­ucts showed an in­crease of over 25 per cent in De­cem­ber. How­ever, ship­ments of ready-made gar­ments de­clined by 8 per cent to USD 1.33 bil­lion last month. Gold im­ports surged by 71.5 per cent to USD 3.39 bil­lion last month as against USD 1.97 bil­lion in De­cem­ber 2016. The im­ports of petroleum prod­ucts and crude oil in­creased by a sig­nif­i­cant 35 per cent to USD 10.34 bil­lion in De­cem­ber, from USD 7.66 bil­lion a year ago. Cu­mu­la­tive value of ex­ports for April-De­cem­ber, 2017-18, was USD 223.512 bil­lion as against USD 199.467 bil­lion in the year­ago pe­riod, a growth of 12.05 per cent. Im­ports dur­ing the first nine months of the cur­rent fis­cal amounted to USD 338.369 bil­lion as against USD 277.89 bil­lion, a growth of of 21.76 per cent. The trade deficit dur­ing the pe­riod widened to USD 114.85 bil­lion. On the trade bal­ance, FIEO said the ris­ing deficit "is alarm­ing" and the im­port pro­file needs to be an­a­lysed care­fully to see whether im­ports would aug­ment do­mes­tic pro­duc­tion or pose a chal­lenge. Ex­ports of only 21 (as against 24 in Novem­ber, 2017) out of 30 ma­jor prod­uct groups were in the pos­i­tive ter­ri­tory in De­cem­ber, 2017 in­clud­ing en­gi­neer­ing goods, petroleum, or­ganic and in­or­ganic chem­i­cals, gems and jew­ellery, and drugs and phar­ma­ceu­ti­cals. Gupta fur­ther said ex­porters are hav­ing "huge prob­lem" in get­ting

re­fund of in­put tax credit (ITC) both due to "ig­no­rance and re­cal­ci­trant ap­proach" of the tax au­thor­i­ties. He said ex­porters should be given rea­sons for the de­lay and there should be close mon­i­tor­ing of GST re­fund for ex­ports on day to day ba­sis. Aditi Na­yar, Prin­ci­pal Econ­o­mist with ICRA said that a sharper than ex­pected rise in im­ports of gold, and pearls, pre­cious and semi-pre­cious stones, amid a con­sid­er­able de­cline in the pace of growth of non-oil mer­chan­dise ex­ports, bloated the mer­chan­dise trade deficit to a three-year high of USD 14.9 bil­lion in De­cem­ber 2017. Mean­while, the Re­serve Bank data showed that the ex­ports in ser­vices in Novem­ber 2017 were val­ued at USD 15.392 bil­lion. The im­ports were val­ued at USD 9.64 bil­lion. It said in a press re­lease that the trade bal­ance in ser­vices (net ex­port of ser­vices) for the month was es­ti­mated at USD 5.74 bil­lion. The Fi­nance Min­is­ter and the Re­serve Bank will have to take into ac­count th­ese mixed sig­nals while pre­par­ing the bud­get for 2018-19 and the next mone­tary pol­icy, re­spec­tively, due in early Fe­bru­ary.

FIEO Pres­i­dent Ganesh Ku­mar Gupta

Suresh Prabhu, Min­is­ter of Com­merce and In­dus­try

Aditi Na­yar, Prin­ci­pal Econ­o­mist ICRA

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