According to data published in focus Intesa Sanpaolo, the annual growth rate of the Indian economy fell to 5,0% in 2012 from 7,5% in 2011 due to the marked slowdown in consumption, especially private ones (4,5% from 7,3% in 2011), and investments (+0,7% from 6,2% in 2011), to which was added a negative contribution from the foreign channel. During 2012 the GDP trend, which remained just above 5% in the first three quarters, progressively slowed down. On the supply side, the deceleration was driven by weak dynamics of the agricultural and manufacturing sectors which were also accompanied by a slowdown in services.
On a trend basis, imports returned to positive territory during the fourth quarter of 2012 with an increase of 7,1%, supported by the strong rebound in oil imports (+26,1%). At the same time, exports recorded a further decline (-3,6%), albeit lower than the previous quarter (-11,4%). The steeper decline in exports relative to imports in 2012 resulted in a new increase in the trade deficit from $161 billion in 2011 to $197 billion in 2012 (8,6% to 10,8% of GDP). consequently, the dynamics of investments, given the increase in stalled projects and the decrease in those started in the last quarter of the year, will continue to be weak at least for the first part of 2013. The FDI liberalization measures taken in the autumn through the Cabinet Committee on Investments, although positive, are proving to be difficult to implement, in particular due to problems related to land acquisition, environmental permits, restrictions on mining and the production and consumption of coal (coal linkage). The recent approval of the law on land acquisition should therefore be seen as a positive step towards a recovery in investment in the medium term.
Industrial production recorded negative trend changes in the last two months of 2012, despite showing a slight improvement, also in economic terms, at the beginning of the year. According to preliminary estimates, industrial production rose by 2,4% in January, thanks to the improvement in manufacturing production, in particular of basic goods and non-durable consumer goods, while the production of capital goods still recorded negative values ( -1,8%). Heavy industry output continues to improve, rising 3,9% in January from 2,5% in December, thanks to favorable momentum in coal, steel, refined petroleum and electricity production.
Wholesale price inflation edged up marginally to 6,8% in February from 6,6% in January albeit remaining in a slow decelerating trend since August 2012. The prices of primary products continue to show decelerating but still rather high tendential variations, in particular due to the dynamics of the cereals and raw textile fibers sector. The increase in the total index is essentially due to the fuel and electricity sector affected by recent diesel price increases. Consumer price inflation thus continues to be high, rising to 10,6% in December and subsequently to 10,9% in February.
In this context, the short-term prospects for consumption and investment continue to be rather weak. Intesa Sanpaolo therefore maintains a forecast of a moderate acceleration of growth in 2013, even if it revises the forecasts from 5,7% to 5,4%, and of a recovery to 6,9% in 2014. The forecasts correspond to a growth of 4,9 % in the 2012-2013 fiscal year, 6,1% in the 2013-2014 fiscal year and 6,5% in the 2014-2015 fiscal year. The forecasts of the major international institutes are in the range of 5,9-6,5% for the 2013-2014 FY, accelerating to the range of 6,4%-7,3% in the 2014-2015 FY. Growth prospects therefore continue to be seen on the downside in the short to medium term, since on the domestic front, progress in the field of structural and fiscal reforms still appears too timid to favor a strong recovery in the business climate in the short term. Added to this the risk of a slower-than-expected drop in inflation with a dampening impact on consumption. On the external front, a worsening of the European crisis could go hand in hand with the weakness of the international recoverythus weighing on the performance of the export Indian and on the already elevated balance of current accounts, exacerbating their financing risks, as already explained in two previous articles on FIRSTonline. Without forgetting that failure to meet the public finance consolidation objectives and a new stalemate in the implementation of the necessary structural reforms, worsening external vulnerability, could trigger a downgrading by the major rating agencies, leading India to lose its status investment grade.
