Continue on slowdown in Indian GDP growth during the third quarter of 2012, rising to 5,3% from 5,5% in the previous one, as shown in the focus of the Intesa Sanpaolo Studies and Research Service. Despite the fact that imports of consumer goods fell by 0,9% in the third quarter, where, however, we note the increase in imports of oil and against capital goods, exports fell more than imports (-12,1% compared to -4,7% in the second quarter). And despite this, inflation, while decreasing from a marginal point of view, still shows very high values. In fact, if wholesale price inflation stood at around 2012% in 7,5, the level of consumer prices rose from 9,8% in October to 9,9% in November. The bottlenecks in the distribution, the depreciation of the rupee as well as the probable new ones forecasts of rising fuel and energy prices leave the risks on inflation still upwards in the coming months, given the country's profound energy and infrastructure shortages.
The Government of India recently approved the establishment of a National Investment Committee (National Investment Board) to accelerate the approval of infrastructure projects exceeding 10 billion rupees. It has also been confirmed willingness to reduce the public deficit to 5,3% of GDP in the current fiscal year from 5,8% in the previous one, also planning an annual reduction of 0,6% over the next five years, which should bring the deficit to 3% of GDP in fiscal 2016 -17. Analyzing the trade balance data, the current account deficit for the current fiscal year it has been revised upwards from the initial target of 5,1% and the target for a future reduction appears unlikely, at least for next year. A report by the Debt Reduction Roadmap Committee has indeed stated that the trade deficit could even rise to 6,1% in the current fiscal year.
In this context, the monetary aggregates continued the current slowdown since last year, recording a growth of 12,5% in November. Credit growth to the non-food commercial sector improved only marginally from 15,7% in September to 16,3% in November. Credit aggregates themselves remain below the Royal Bank of India's projections due to low demand for credit and the slowdown in credit granted by public sector and foreign banks. L'increase in non-performing loan ratios during the second and third quarters it led the RBI to raise the provisioning coefficient from 2% to 2,75% at the end of October. Also, the recent depreciation of the rupee (-7,7%), only partially recovered in the first half of December, exposes the Indian currency to the volatility of capital flows as well as to the opinion of international investors on the credibility of the announced reforms. In this regard, the Central Bank recently left the reference rates unchanged, after cutting the compulsory reserve rate by another 25bp, bringing it to 4,25.
According to the estimates reported in the latest Country Report by atradius, the Indian economy is expected to grow again, settling at 6,5%, a value however still far from the 9% indicated as the potential long-term growth rate. But the deterioration in fundamentals, caused by a inadequate tax policy, which has led to an increase in the public debt-to-GDP ratio, could result in the downgrading of the sovereign rating, making access to international financial markets more difficult and raising interest rates. India could get out of this situation financing its deficit on the domestic market, thus reducing theexposure, also cyclical, to the European market. But support for internal consumption cannot then be separated from aefficient distribution of income between geographic regions and social groups.
Inflation still remains very high and the RBI has revised its forecast for March 2013 upwards to 7,5% from 7% last July. A high general level of prices, accompanied by risks deriving from the simultaneous financing of public deficits and trade deficits, place limits on monetary policy action aimed at countering the economic slowdown. However, the Central Bank was optimistic. According to the RBI, even if inflation risks remain high, the recent marginal decline in inflation strengthens the October scenario which indicated the likelihood of a further easing of monetary policy during the first quarter of 2013. If these conditions were to be confirmed, interest rates would be reduced gradually starting from January. A perspective that, as already analyzed in a previous article, in the absence of effective commercial strategies and profound reforms in the field of energy, infrastructure and distribution between social and productive classes, risks crush India's medium- to long-term economic scenario under the weight of twin inflation and deficits.
