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Sep 17 2013
Indian Economy: Improving Ahead!

India is one of the prominent emerging economies in the Asian region. According to the Annual Survey of Global Competitiveness, Singapore reached the top 2nd while Hongkong was on the 7th position and Japan on the 9th position while India stood at the 60th position. On August 28th , the USD/INR witnessed the biggest drop, to its lowest at 68.80 which drove its economic conditions to the worst. On the other hand, India’s GDP growth reached the lowest in four years to 4.4% in June quarter while it had grown by 5.4% in the same period of the previous fiscal year. With the rise in food prices by 18.2% in August from a year earlier, onion costs rallied up by 245% and fuel & power hiked by 11.3%; the wholesale-price index rose by 6.1% from a year earlier compared with July’s 5.79% increase.

India was heading back to a 1991-like crisis when the country was forced to pledge its gold to pay import bills. India’s current-account deficit (CAD) heightened to a record high of USD 88 billion or 4.8% of the GDP for the fiscal ended March 31 from USD 78.2 billion in 2011-12 about 4.2% of GDP. India’s CAD for the year 2012-13 had swelled up by 9.6% from a year earlier. The main reason behind the CAD is the gold and oil imports. According to World Gold Council, India had imported 859.7 tonnes of gold in 2012 against 969 tonnes in 2011. Also the oil imports accounted for USD 156973 million from April 2012-March 2013. With the rise in the import tax on gold by 10%, the gold imports were just about 3.5 tonnes in August about a tenth from a year ago period.

Government of India hiked diesel prices by 10% to ease its oil subsidy burden and reduce its constituent effect on CAD. Also, the appointment of Raghuram Rajan as the Governor of Reserve Bank of India on September 4 has brought back a ray of hope in the Indian economy. The INR which had lost over 20% since April and had touched a life time low of 68.86 to a USD has revived back to 63.53 on September 17th. This was a 1.09 gain compared to the previous day. The pressure against INR can be felt low as Lawrence Summers had dropped his candidacy from Fed’s Chairman and prospect of reduced US monetary stimulus hurting the USD.

The government has attempted to promote growth through liberalizing FDI investment norms, resolve tax concerns of the industry, fast track public sector investment and initiate measures to contain fiscal deficit. Yet, coming days are about to be seen!

 
Posted by Mex R&D at 17/9/2013 1:41:15 PM
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Arun Ragothaman said, at 17/9/2013 6:27:45 PM
  " Very informative and a well rounded analysis! With the upcoming FOMC meeting bombshell,hope the worst days are behind for the Indian economy."
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