More rate, tax cuts soon to aid economy

India may add to interest rate and tax cuts announced early this month as declining output and exports indicate Asia’s third biggest economy is headed for a deeper than expected slowdown, an official said.

The government is committed that whatever steps are required to be taken in the near future as the scenario further unfolds will be taken, Ashok Chawla, India’s economic affairs secretary, told Bloomberg in Hong Kong on Monday.

India’s industrial production declined in October for the first time in at least 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force companies to cut production.

“The present priority is to ensure that the economy doesn’t slow down very much and that growth is not hampered,” Chawla said.

South Asia’s biggest economy may grow 7% in the year to 31 March from 9% or more annually in the previous three years, the government expects.

The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5% growth in its 27 January policy meeting, according to governor D. Subbarao.

India’s economy grew 7.6% in the three months to 30 September from a year earlier, the slowest pace since 2004. To revive demand, the central bank on 6 December lowered its benchmark repurchase rate to 6.5% from 7.5%, the third cut since October. The next day the government announced a $4 billion stimulus package.

“The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said. To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t exceed Rs500,000 ($10,425) at 8.5%, State Bank of India chairman O.P. Bhatt said in Mumbai on Monday. Interest rates capped at 9.25% will be offered for borrowers seeking loans of less than Rs20 lakh, he said.
I ndia may add to interest rate and tax cuts announced ear- ly this month as declining out- put and exports indicate Asia’s third biggest economy is head- ed for a deeper than expected slowdown, an official said. The government is commit- ted that whatever steps are re- quired to be taken in the near future as the scenario further unfolds will be taken, Ashok Chawla, India’s economic af- fairs secretary, told Bloomberg in Hong Kong on Monday. India’s industrial production declined in October for the first time in at least 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force com- panies to cut production. “The present priority is to ensure that the economy doesn’t slow down very much and that growth is not ham- pered,” Chawla said. South Asia’s biggest econo- my may grow 7% in the year to 31 March from 9% or more an- nually in the previous three years, the government expects. The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5% growth in its 27 Janu- ary policy meeting, according to governor D. Subbarao. India’s economy grew 7.6% in the three months to 30 Sep- tember from a year earlier, the slowest pace since 2004. To re- vive demand, the central bank on 6 December lowered its benchmark repurchase rate to 6.5% from 7.5%, the third cut since October. The next day the government announced a $4 billion stimulus package. “The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said. To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t ex- ceed Rs500,000 ($10,425) at 8.5%, State Bank of India chair- man O.P. Bhatt said in Mum- bai on Monday. Interest rates capped at 9.25% will be offered for borrowers seeking loans of less than Rs20 lakh, he said.

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More rate, tax cuts soon to aid economy

India may add to interest rate and tax cuts announced early this month as declining output and exports indicate Asia’s third biggest economy is headed for a deeper than expected slowdown, an official said.

The government is committed that whatever steps are required to be taken in the near future as the scenario further unfolds will be taken, Ashok Chawla, India’s economic affairs secretary, told Bloomberg in Hong Kong on Monday.

India’s industrial production declined in October for the first time in at least 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force companies to cut production.

“The present priority is to ensure that the economy doesn’t slow down very much and that growth is not hampered,” Chawla said.

South Asia’s biggest economy may grow 7% in the year to 31 March from 9% or more annually in the previous three years, the government expects.

The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5% growth in its 27 January policy meeting, according to governor D. Subbarao.

India’s economy grew 7.6% in the three months to 30 September from a year earlier, the slowest pace since 2004. To revive demand, the central bank on 6 December lowered its benchmark repurchase rate to 6.5% from 7.5%, the third cut since October. The next day the government announced a $4 billion stimulus package.

“The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said. To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t exceed Rs500,000 ($10,425) at 8.5%, State Bank of India chairman O.P. Bhatt said in Mumbai on Monday. Interest rates capped at 9.25% will be offered for borrowers seeking loans of less than Rs20 lakh, he said.
I ndia may add to interest rate and tax cuts announced ear- ly this month as declining out- put and exports indicate Asia’s third biggest economy is head- ed for a deeper than expected slowdown, an official said. The government is commit- ted that whatever steps are re- quired to be taken in the near future as the scenario further unfolds will be taken, Ashok Chawla, India’s economic af- fairs secretary, told Bloomberg in Hong Kong on Monday. India’s industrial production declined in October for the first time in at least 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force com- panies to cut production. “The present priority is to ensure that the economy doesn’t slow down very much and that growth is not ham- pered,” Chawla said. South Asia’s biggest econo- my may grow 7% in the year to 31 March from 9% or more an- nually in the previous three years, the government expects. The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5% growth in its 27 Janu- ary policy meeting, according to governor D. Subbarao. India’s economy grew 7.6% in the three months to 30 Sep- tember from a year earlier, the slowest pace since 2004. To re- vive demand, the central bank on 6 December lowered its benchmark repurchase rate to 6.5% from 7.5%, the third cut since October. The next day the government announced a $4 billion stimulus package. “The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said. To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t ex- ceed Rs500,000 ($10,425) at 8.5%, State Bank of India chair- man O.P. Bhatt said in Mum- bai on Monday. Interest rates capped at 9.25% will be offered for borrowers seeking loans of less than Rs20 lakh, he said.

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Manufacturing sector shrinks

The downturn in the economy is gathering momentum. Till Octo ber, India was the only major economy in the world that saw expansion in manufacturing, according to surveys of purchasing managers.

The seasonally adjusted November ABN Amro PMI, or purchasing managers index, for India has slipped to 45.8, which means that manufacturing contracted during the month, compared with the previous month. Any reading below 50 indicates contraction.

What is even more worrying is the pace of the downturn. The output index, for instance, was at a very healthy 61.7 in September, slipped to 54.1 in October and slid to 44.6 in November. The decline in output was the first since data for the index started to be collected in April 2005.

The new orders sub-index was even more affected, falling to 43.2 in November from 54.4 in October. As many as 29.4% of the respondents said that new orders during the month were less than that in the previous month.

Clearly, investment demand has been affected.

In October, most firms had said new orders remained strong in the domestic market and international orders had dwindled. That has changed, with the November survey pointing out, “Anecdotal evidence indicated that the deterioration in domestic demand was especially severe in November.” The new export orders sub-index also worsened, falling from 49.7 in October to 46.7 in November. HSBC’s Robert Prior-Wandesforde wrote in a research note, “Historically, the manufacturing PMI hasn’t tracked industrial production particularly well but has had a much closer relationship with export growth. As such, it is perhaps not so surprising to see export values down 12.1% year-on-year in October. This is the first contraction since August 2003 and the largest since October 1998.” Even the depreciation of the rupee against the US dol lar is not helping exports.

The only sub-index that does not show contraction yet is employment. That was still at 50 in November, indicating that employment neither expanded nor contracted during the month.

But with increasing anecdotal evidence of job losses, it’s likely that the employment index, too, will go the way of all the other PMI sub-indices in the coming months.

CLSA’s manufacturing PMI for China, at 40.9 in November, already showed a contraction in employment in October. Once employment starts to fall in India, it will hurt consumption demand even more. Already in November, Maruti’s car sales were down 27%.

Like the rest of the world, manufacturing has started contracting both in India and China. Unfortunately, while China has already announced a huge fiscal stimulus to help prop up the economy, there has so far been no sign of one in India.

Manufacturing sector shrinks

The downturn in the economy is gathering momentum. Till Octo ber, India was the only major economy in the world that saw expansion in manufacturing, according to surveys of purchasing managers.

The seasonally adjusted November ABN Amro PMI, or purchasing managers index, for India has slipped to 45.8, which means that manufacturing contracted during the month, compared with the previous month. Any reading below 50 indicates contraction.

What is even more worrying is the pace of the downturn. The output index, for instance, was at a very healthy 61.7 in September, slipped to 54.1 in October and slid to 44.6 in November. The decline in output was the first since data for the index started to be collected in April 2005.

The new orders sub-index was even more affected, falling to 43.2 in November from 54.4 in October. As many as 29.4% of the respondents said that new orders during the month were less than that in the previous month.

Clearly, investment demand has been affected.

In October, most firms had said new orders remained strong in the domestic market and international orders had dwindled. That has changed, with the November survey pointing out, “Anecdotal evidence indicated that the deterioration in domestic demand was especially severe in November.” The new export orders sub-index also worsened, falling from 49.7 in October to 46.7 in November. HSBC’s Robert Prior-Wandesforde wrote in a research note, “Historically, the manufacturing PMI hasn’t tracked industrial production particularly well but has had a much closer relationship with export growth. As such, it is perhaps not so surprising to see export values down 12.1% year-on-year in October. This is the first contraction since August 2003 and the largest since October 1998.” Even the depreciation of the rupee against the US dol lar is not helping exports.

The only sub-index that does not show contraction yet is employment. That was still at 50 in November, indicating that employment neither expanded nor contracted during the month.

But with increasing anecdotal evidence of job losses, it’s likely that the employment index, too, will go the way of all the other PMI sub-indices in the coming months.

CLSA’s manufacturing PMI for China, at 40.9 in November, already showed a contraction in employment in October. Once employment starts to fall in India, it will hurt consumption demand even more. Already in November, Maruti’s car sales were down 27%.

Like the rest of the world, manufacturing has started contracting both in India and China. Unfortunately, while China has already announced a huge fiscal stimulus to help prop up the economy, there has so far been no sign of one in India.