From Bloomberg today:
India's 9 percent economic growth may be sustained for a record third year on prospects of bumper crops and a retreat in crude oil prices, Finance Minister Palaniappan Chidambaram said.
``If harvests are good, we are able to enjoy a bit of luck with crude oil, and we are able to moderate capital flows, which are putting pressure on inflation, we should have 9 percent'' in the fiscal year ending March 31, the Harvard-educated minister said in an interview yesterday in New Delhi.
Chidambaram's prediction came after figures showed the pace of growth slowed in Asia's third-largest economy last quarter amid decade-high borrowing costs. Morgan Stanley's Asia chairman Stephen Roach said the slowdown was temporary, with 9 percent growth in India being ``eminently achievable.''
``I am very optimistic about India over the next three to five years,'' Roach said in an interview in New Delhi. ``The combination of monetary tightening and a higher value of the rupee in the foreign-exchange market can put the brakes on the economy in the near term.''
India's $906 billion economy grew 8.9 percent in the three months to Sept. 30 from a year earlier, after gaining 9.3 percent in the previous quarter, the government reported last week. China's $2.6 trillion economy expanded 11.5 percent in the third quarter.
Foreign Investment
Industry Minister Kamal Nath last month said almost all of India's economy is now open to overseas investment since Prime Minister Manmohan Singh, as the finance minister in 1991 started to dismantle India's Soviet-style controls on industry. Only some defense-related areas and retail remain closed, Nath said.
Since assuming office in May 2004, Singh's government has relaxed foreign investments in telecommunications and single- brand retail outlets. The government will this week consider easing foreign investment rules in aircraft maintenance companies, petroleum-marketing firms and commodity exchanges, the Economic Times reported.
To attract more funds from abroad, India last year enacted a law to enable construction of special economic zones, enclaves modeled on China's Shenzhen. The government also has a five-year plan to attract investments of $500 billion in roads, ports and other infrastructure.
Chidambaram said that while investment will continue to drive India's economic growth, ``there are some risks, such as crude oil prices, over which we have no control.''
Fuel Subsidies
India is Asia's third-biggest oil consumer and imports almost three-quarters of its needs. It hasn't raised fuel prices this year, when oil surged to a record, to protect consumers in a country where more than half the 1.1 billion population live on less than $2 a day. That's adding to an annual $25 billion subsidy bill which could have been spent instead on health, education and other infrastructure.
Crude oil for January delivery fell 9.7 percent to $88.71 a barrel last week on the New York Mercantile Exchange, the biggest weekly decline in two and a half years.
India's agriculture, which makes up a fifth of the economy, depends on the vagaries of the June-September monsoon rains to irrigate crops across the world's seventh-largest land mass.
There were more rains than forecast this season, according to the state-owned weather bureau, improving prospects for a record output of crops from rice to cotton and soybean.
Interest Rates
JPMorgan Chase & Co. and HSBC Group Plc expect more than three years of interest-rate increases by the central bank will also moderate India's expansion. The economy grew 9.4 percent in the year ending March 2007 after gaining 9 percent in the previous 12 months.
``Ex-agricultural growth will continue to trend lower over the next 18 months because of the lagged effects of the tightening of policy conditions, both in the form of a stronger exchange rate and higher interest rates,'' said Robert Prior- Wandesforde, senior economist at HSBC in Singapore.
India's central bank, which has raised its benchmark interest rate nine times since October 2004, on Oct. 30 ordered lenders to set aside more reserves for a fourth time this year to prevent inflows of foreign cash from reigniting inflation and pushing up the rupee, already at a nine-year high.
Global investors, encouraged by India's unprecedented economic growth, have bought $17.3 billion of stocks and bonds so far this year, higher than the previous record of $9.46 billion in 2005.
To check the flood of capital, the Securities and Exchange Board of India, the stock market regulator, on Oct. 25 barred issuance of offshore instruments tied to derivatives. The rupee has gained 11.7 percent against the dollar this year.
``The Indian rupee will retain a strengthening bias over the medium-term owing to robust capital inflows,'' said Siddharth Mathur, an analyst at JPMorgan Chase in Singapore. JP Morgan expects India's economy to grow 8.6 percent in the year to March 31, and 7.5 percent in the following 12-month period.
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Monday, December 03, 2007
India's Exports Increase at Fastest Pace in 15 Months
From Bloomberg this morning:
India's exports grew in October at the fastest pace in 15 months as companies filled old orders and used hedging to cope with the impact of rupee appreciation.
Shipments of manufactured goods including gems and petroleum products rose 35.7 percent from a year earlier to $13.3 billion, following a 19.2 percent gain in September, the commerce ministry said today in New Delhi. Imports increased 24.3 percent to $20.8 billion, widening the trade deficit to $7.5 billion from $7 billion a year earlier.
Rising exports may help Prime Minister Manmohan Singh's government achieve its target of boosting India's annual economic expansion to more than 9 percent in the next five years. Singh needs faster growth to generate more employment and reduce poverty in a nation of 1.1 billion people where more than half the population lives on less than $2 a day.
``Companies are now carrying out orders booked earlier, as exporters don't want to lose the market forever,'' said Ganesh Kumar Gupta, president of the Federation of Indian Export Organizations in New Delhi. ``The rupee appreciation is hurting the profitability of the exporters.''
India's currency has gained more than 11 percent this year against the dollar, eroding the value of the merchandise exports which make up about 15 percent of Asia's third-largest economy.
Exports in the seven months ended Oct. 31 rose 21 percent to $$85.6 billion, while imports rose 25.31 percent to $130 billion in the period, widening the trade deficit to $44.4 billion from $32.9 billion a year earlier.
Stronger Currency
The local currency gained to a near nine-year high against the dollar this year and is the second-best performer in Asia, hurting the profits of exporters. The rupee gained as overseas investors, enticed by record economic growth, purchased shares.
Gems and jewelry exports rose 48 percent to $2.16 billion in October from $1.4 billion in the same month a year ago, according to the Gem & Jewelry Export Promotion Council.
``Rupee appreciation definitely has an impact on the export earnings, but we have managed to counter the impact as all our transactions are covered by hedging,'' said Bipin Mehta, chief financial officer of Rajesh Exports Ltd., India's largest producer and exporter of gold jewelry by market value.
Non-oil imports in October rose 28.8 percent to $14.65 billion, while oil imports gained 14.6 percent to $6.12 billion, today's report said.
India's exports grew in October at the fastest pace in 15 months as companies filled old orders and used hedging to cope with the impact of rupee appreciation.
Shipments of manufactured goods including gems and petroleum products rose 35.7 percent from a year earlier to $13.3 billion, following a 19.2 percent gain in September, the commerce ministry said today in New Delhi. Imports increased 24.3 percent to $20.8 billion, widening the trade deficit to $7.5 billion from $7 billion a year earlier.
Rising exports may help Prime Minister Manmohan Singh's government achieve its target of boosting India's annual economic expansion to more than 9 percent in the next five years. Singh needs faster growth to generate more employment and reduce poverty in a nation of 1.1 billion people where more than half the population lives on less than $2 a day.
``Companies are now carrying out orders booked earlier, as exporters don't want to lose the market forever,'' said Ganesh Kumar Gupta, president of the Federation of Indian Export Organizations in New Delhi. ``The rupee appreciation is hurting the profitability of the exporters.''
India's currency has gained more than 11 percent this year against the dollar, eroding the value of the merchandise exports which make up about 15 percent of Asia's third-largest economy.
Exports in the seven months ended Oct. 31 rose 21 percent to $$85.6 billion, while imports rose 25.31 percent to $130 billion in the period, widening the trade deficit to $44.4 billion from $32.9 billion a year earlier.
Stronger Currency
The local currency gained to a near nine-year high against the dollar this year and is the second-best performer in Asia, hurting the profits of exporters. The rupee gained as overseas investors, enticed by record economic growth, purchased shares.
Gems and jewelry exports rose 48 percent to $2.16 billion in October from $1.4 billion in the same month a year ago, according to the Gem & Jewelry Export Promotion Council.
``Rupee appreciation definitely has an impact on the export earnings, but we have managed to counter the impact as all our transactions are covered by hedging,'' said Bipin Mehta, chief financial officer of Rajesh Exports Ltd., India's largest producer and exporter of gold jewelry by market value.
Non-oil imports in October rose 28.8 percent to $14.65 billion, while oil imports gained 14.6 percent to $6.12 billion, today's report said.
Thursday, November 22, 2007
RBI and Capital Inflows
From Bloomberg this morning:
India's central bank is yet to take a clear view on record capital flows, after the rupee gained the most in 33 years, Deputy Governor Rakesh Mohan said today.
India's best economic performance in 60 years led overseas investors to buy a record $18.6 billion in stocks and bonds this year. That's helped the rupee gain 12.3 percent since January and pushed the benchmark stock index above 20,000 points for the first time, leading to the imposition of some capital controls.
``We do intervene in the market, but we would like the exchange rate to be market determined,'' Mohan said in New Delhi.
India's finance ministry in August imposed curbs on companies seeking to borrow from overseas and the Securities & Exchange Board of India on Oct. 25 tightened rules on overseas investment in shares through so-called participatory notes.
The rupee surged as high as 39.185 against the dollar on Nov. 7, the highest intraday level since Feb. 20, 1998. It has retreated since and traded at 39.41 as of 10:45 a.m. in Mumbai, according to data compiled by Bloomberg.
India's central bank stepped up dollar purchases to prevent the rupee from gaining further and hurting exporters after it recorded the biggest annual gain in more than three decades.
Mohan said that while the central bank was successful in cooling down some sectors of the economy, it will use all instruments needed for its monetary policy objectives. The objectives of the policy are guided by financial and price stability, besides sustained growth.
`Unorthodox Approach'
``We have followed an unorthodox approach in the conduct of the monetary policy,'' Mohan said. ``We have succeeded in cooling down certain parts of the market. We will do whatever is necessary both upwards and downwards when the market situation demands.''
The Reserve Bank on Oct. 30 raised the ratio of deposits that lenders must put aside for the fourth time this year to curb inflation. The move helped inflation hold near a five-year low.
Wholesale prices rose 3.11 percent in the week ended Nov. 3 from a year earlier, compared with a 2.97 percent gain in the previous week, the government said last week.
India's exposure to the U.S. mortgage market has been small and the economy has so far been insulated from the subprime- mortgage crisis, Mohan said.
Losses from subprime mortgage foreclosures along with slower growth and falling house prices could reach as much as $300 billion, according to the Organization for Economic Cooperation and Development.
``Recent economic news points towards a more protracted economic adjustment,'' the OECD said in a report released in Paris. ``A recession in the U.S. is now seen as more likely than before by some observers.''
India's central bank is yet to take a clear view on record capital flows, after the rupee gained the most in 33 years, Deputy Governor Rakesh Mohan said today.
India's best economic performance in 60 years led overseas investors to buy a record $18.6 billion in stocks and bonds this year. That's helped the rupee gain 12.3 percent since January and pushed the benchmark stock index above 20,000 points for the first time, leading to the imposition of some capital controls.
``We do intervene in the market, but we would like the exchange rate to be market determined,'' Mohan said in New Delhi.
India's finance ministry in August imposed curbs on companies seeking to borrow from overseas and the Securities & Exchange Board of India on Oct. 25 tightened rules on overseas investment in shares through so-called participatory notes.
The rupee surged as high as 39.185 against the dollar on Nov. 7, the highest intraday level since Feb. 20, 1998. It has retreated since and traded at 39.41 as of 10:45 a.m. in Mumbai, according to data compiled by Bloomberg.
India's central bank stepped up dollar purchases to prevent the rupee from gaining further and hurting exporters after it recorded the biggest annual gain in more than three decades.
Mohan said that while the central bank was successful in cooling down some sectors of the economy, it will use all instruments needed for its monetary policy objectives. The objectives of the policy are guided by financial and price stability, besides sustained growth.
`Unorthodox Approach'
``We have followed an unorthodox approach in the conduct of the monetary policy,'' Mohan said. ``We have succeeded in cooling down certain parts of the market. We will do whatever is necessary both upwards and downwards when the market situation demands.''
The Reserve Bank on Oct. 30 raised the ratio of deposits that lenders must put aside for the fourth time this year to curb inflation. The move helped inflation hold near a five-year low.
Wholesale prices rose 3.11 percent in the week ended Nov. 3 from a year earlier, compared with a 2.97 percent gain in the previous week, the government said last week.
India's exposure to the U.S. mortgage market has been small and the economy has so far been insulated from the subprime- mortgage crisis, Mohan said.
Losses from subprime mortgage foreclosures along with slower growth and falling house prices could reach as much as $300 billion, according to the Organization for Economic Cooperation and Development.
``Recent economic news points towards a more protracted economic adjustment,'' the OECD said in a report released in Paris. ``A recession in the U.S. is now seen as more likely than before by some observers.''
Thursday, November 15, 2007
Capital Inflows into India
Ok, this is just a brief piece to say that after a long absence I am once more getting interested in India (or better put finding the time to think more about India, since I have always been and always will be interested in India). I am starting to compile some information. This has mainly been prompted by a recent posting on the Morgan Stanley GEF from Chetan Ahya.
In particular this:
and this:
Basically this has all now gone well beyond the old "sizzling India" debate, and there are aspects of what is happening in India which remind me of what I have been seeing in the Baltics (although there are obviously huge differences), especially the danger of the RBI effectively losing control over monetary policy, and how capital inflows and a deteriorating current account situation can provoke inflation and make it hard to achieve a trade balance. This can, of course, completely distort India's economic development, and needs a lot of serious thought.
I am now about to start tracking India again. A first move in this direction is to log this brief piece in Bloomberg this morning:
In particular this:
Over the seven weeks ending November 2, 2007, India’s foreign exchange reserves have increased by US$34 billion (annualized inflow of US$250 billion). Indeed, the trailing 12-month sum of FX reserves has increased to US$100 billion. This compares with the average annual increase of US$38 billion over three years prior to these seven weeks. With the current account still in deficit, the increase in reserves is being driven largely by a spike in capital inflows and to a very small extent because of conversion of non-dollar reserves into dollars. During the last seven weeks in which FX reserves have shot up, we believe that capital inflows would have been US$35 billion. Out of this, not more than 10% has been on account of FDI inflows. Non-FDI inflows including portfolio equity and external debt inflows form a major part of these inflows.
and this:
While the inflows are pouring in at the annualized run rate of US$250 billion, in our view, currently the country can absorb only about US$40-50 billion of capital inflows annually without causing any concern on attended risks of overheating.
Basically this has all now gone well beyond the old "sizzling India" debate, and there are aspects of what is happening in India which remind me of what I have been seeing in the Baltics (although there are obviously huge differences), especially the danger of the RBI effectively losing control over monetary policy, and how capital inflows and a deteriorating current account situation can provoke inflation and make it hard to achieve a trade balance. This can, of course, completely distort India's economic development, and needs a lot of serious thought.
I am now about to start tracking India again. A first move in this direction is to log this brief piece in Bloomberg this morning:
India's rupee rose for a second day on speculation economic growth that is the fastest among major economies after China will keep drawing overseas investment.
The currency traded near the strongest in almost a decade after Finance Minister Palaniappan Chidambaram said late yesterday that the expansion will be ``about'' 9 percent this year, near the quickest since 1989 in the 12 months through March 2007. Purchases of Indian shares by funds based abroad more than doubled this year from 2006.
``The short-term outlook is quite positive for the rupee as the stock market sentiment remains bullish,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``We could see further rupee gains in the coming weeks.''
The rupee rose to 39.2950 per dollar as of 12:43 p.m. in Mumbai, according to data compiled by Bloomberg. Its 12.7 percent advance this year is the second-best performance by an Asian currency after the Philippine peso.
The currency may advance to 39.1 in the coming weeks, Rajagopal said. The median forecast of 24 economists in a Bloomberg News survey predicts the rupee will reach 39.21 by year-end and 39 by the end of March 2008.
The Bombay Stock Exchange's Sensitive Index has advanced 4.8 percent this week, after declining 5.4 percent last week. The index is headed for a sixth annual gain as stock purchases by global funds reached a record $16.8 billion this year, compared with $8 billion in 2006.
Asia's third-largest economy has grown an average 8.6 percent since 2004, the fastest pace since independence in 1947.
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