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The Emerging Economy
– Monthly Newsletter from Indicus
Analytics
7th October 2009
Highlights
• September rains bring fresh hope for rabi crop
in the winter
• Inflation moves into positive territory, expect
7% by March end for the WPI
• Lacklustre export scene to continue as
international recovery slow
• Infrastructure sectors show better performance
than last year – construction on an upswing
• Exit strategies discussed worldwide, timing and
pace to differ across countries
• RBI shows inclination to raise rates earlier than
other economies to reign in inflation
expectations
The festive season rolls in again and with it, the stock
market is busy spreading cheer. IIP numbers, as we had
expected are rising; the HSBC- Markit PMI survey
confirms expansion in manufacturing activity in
September with encouraging news on the new orders
front. Vehicle sales are also up and as the mood sets in
for rate hikes next year, credit markets are set to buzz
once more. From this month onwards great times are
expected at the consumer markets.

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Exports though continue to reel under impact of
international slowdown, August data shows decline of
19.4%. We can expect this lacklustre scene to continue
through this year as global recovery is still slow, apart
from a few specific sectors where large companies are
diverting their international value chains towards India e.g
auto sector where we beat China in exports earning rave
reviews globally. In general, the up-trend appears to be
quite well spread across the country, while Mumbai seems
to be the most upbeat, on back of re-entry of international
capital via FIIs. Rains finally did show up and conditions in
the north-west are not as bad as expected a couple of
months back. There are therefore great expectations from
the rabi crop now.
One worrying issue that we have highlighted before is the
growing Naxal activity. Naxals are a response to a non-
functioning and badly performing state. The less one
trusts the state to act in a fair manner, the more clout the
Naxals get. There has to be a fundamental change in
governance to strike at the roots of this counter-
insurgency. Meanwhile, Naxals are concentrated in areas
with large tribal populations, and almost all large projects
in these areas are stuck. The government will be ‘forced’
to use greater force to counter the Naxals. But the point
remains that rehabilitation has never been a priority for
any government at the state or the centre, thus playing
into the hands of the Naxals. The impact at the macro-
level will play out with large projects being inordinately
delayed because no one really trusts the promises of the
government or private entities on rehab in any of the
tribal dominated areas in the eastern states.
Last month we explained why it is not in India’s long term
interest to tread the route of foreign loans even if the
option looked attractive in the short-term. Sooner than we

Indicus Analytics, An Economics Research Firm
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expected, though, the World Bank approved a loan of $4.3
billion in September – the second largest loan for a single
country in a single year. Interestingly, this loan is said to
be in support for India’s economic stimulus, a country that
the World Bank itself projects to be fastest growing
country in the world next year. Such support may be
comforting to some but we reiterate: high fiscal deficit
and a rising debt burden are hardly a recipe for
sustainable growth.
We begin the fifth year of this newsletter and would like to
thank all our readers for their feedback over the years.
Please visit our homepage for updated interactive time
series graphs of economic indicators and blog posts
throughout the month.
Sumita Kale and Laveesh Bhandari
6th October 2009, Indicus Analytics
Sumita Kale is Chief Economist, and Laveesh Bhandari is
Director, Indicus Analytics. They can be contacted at
sumita@indicus.net and laveesh@indicus.net.
Economic Growth
• Industrial production showed 6.8% growth in July
in the first estimates released by CSO. June output
growth was raised from 7.8% to 8.2% in the first
revision.
• Infrastructure industries continued to shine bright
in August with growth of 7.1% compared to 2.1%
last August. Cement at 17.6% and coal at 12.9%
were the star performers.
• Electricity generation in September grew by 6.7%
over the previous year, as per provisional
estimates by CEA.

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• Rains in September brought the gross deficit in the
country down to 21% departure from normal. Yet,
floods in the south have threatened to wipe out
some of the gains.
• The main crop to take the hit this monsoon has
been rice, whose sowing was down 61.09% by 16th
September. However, with late rains, the rabi
crop is expected to do well.
• The HSBC-Markit PMI survey showed an uptick in
the manufacturing activity index in September to
55, new orders were also buoyant.
• Auto sales surged in September as car sales
reached a new high of 1.53 lakh units, higher than
the previous high of 1.29 lakh units sold in March
this year. – Hyundai posted its highest sales ever,
Maruti at 11% growth, Tata Motors at 23%,
Mahindra and Mahindra 37%, GM at 47% etc.
while motorcycle sales also grew at a brisk pace.
Hero Honda and TVS sold 4% more units in
September, while Suzuki sales grew by 26%.
• Indian railways carried 12.18% more freight traffic
in August compared to last year.
• 15.08 million new subscribers were added in the
wireless segment in telecommunications in the
month of August, bringing the teledensity in the
country to 42.27%.
• Naukri Jobspeak index showed a fall in hiring in
August over July levels by 3.6%, however it
appears that the general uptrend since April will
continue ahead.
• The Baltic Dry Index for Shipping has been
extremely volatile over the last year, raising
sufficient doubt about sustaining recovery in global
demand from China.
Read

Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
EU debates crisis exit strategy
Is Baltic Dry a harbinger of doom?
Inflation
• WPI provisional inflation went into positive
territory from the week ending 5th September,
however with sharp upward revisions to July data,
it is likely that inflation was positive in August
itself.
• Consumer price data for August shows high
growth with inflation at 11.72% for CPI IW and
12.89% for CPI AL. CPI UNME inflation for July
stood at 13.04%.
• These high levels of inflation follow the high prices
rises in food commodities like sugar (44.5% yoy
for WPI week ending 19th September), cereals
(13.17%) and pulses (20.05%). Vegetables at
49.5% show the highest year on year rise.
• HSBC- Markit PMI survey data for September
shows output price index reaching a one year
high, indicating that higher input prices are being
passed on to consumers now.
• Brent crude has been quite volatile this month,
ranging between a low of $64.6 and high of
$71.56 per barrel. While these levels are still 30%
below last September’s prices, crude is still valued
at double the December 2008 lows.
Read
UPA’s Marie Antoinette Syndrome

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Interest Rates
• The 10 year benchmark gilt which saw 7.4397%
yield on 1st September fell to a low of 7.0661% and
climbed up slightly touching 7.1981% on 1st October.
• While rate hikes are eminent the world over, the
exact timing and pace would differ from country to
country, depending on the growth and inflation
scenarios.
• Inflation in India has been pushed by primary articles
but the PMI survey indicating rising output prices is
not a comfortable sign for the RBI. Nor are the ‘back
in favour’ stock market and realty offers.
• On the other hand, non-food credit is still to look up,
currently at half the levels of the previous year.
• There is however a strong likelihood of the RBI being
pushed into raising rates by early 2010 to signal
their unwillingness to stomach year end inflation of
more than 4-5%.
Read
Bonds should rally- RBI Deputy Governor
Any HTM hike will be a blow to credit market
Policy continuity at RBI
Exchange Rates
• Exports during August were 19.4% lower than last
year in dollar terms (9.2% lower in rupee terms)
while imports fell by 32.4% in dollar terms (23.9% in
rupee terms).
• Oil imports were lower by 45.4% in August and non-
oil imports fell by 25.5%.

Indicus Analytics, An Economics Research Firm
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• Trade deficit for the period April- August stood at
$38.17 billion, compared to $60.73 billion last year.
• Balance of payments data for Q1 2009-10 shows that
despite net invisibles surplus with buoyant private
remittance inflows, the sharp decline in exports
brought the current account into deficit of $ 5.8
billion(compared to $9.0 billion in Q1 2008-09).
• Capital inflows showed a revival, especially foreign
investments, bringing around the capital account
from a negative balance in the last two quarters of
2008-09 to a positive balance of $ 6.7 billion in Q1
2009-10.
• Portfolio investment turned from net outflows of $
2.7 billion in Q4 2008-09 to net inflows of $ 8.3
billion in Q1 2009-10.
• With positive inflows and a weaker dollar overseas,
the rupee strengthened to touch 47.86 to a dollar on
1st October.
• The dollar has fallen 14% against a basket of seven
currencies since March but is set to rise, see Mecklai
article below.
Read
The calm after the storm
Giethner says ‘Very important’ to have strong dollar
Recommendations
Demand Curve :Cities of the West powering India
Fe- Indicus Policy Series – Let coal be green
How the states were ranked: State of the States 2009

Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Factbox: What it takes to rebalance the global economy
Activation de l'équité et l'efficacité grâce aux enchères en
Inde

Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
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