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• Stronger recovery across the globe – trend to continue at slow pace
• RBI refrains from rate hike in October, expect action only after January
• Inflation in consumer prices continues unabated, expect reduction in pressures only by January
• Exports decline reduced, horizon appears brighter
• Overall – a positive outlook on the economy over the next quarter
Good tidings from across the globe as manufacturing showed stronger signs of revival even in advanced economies that were the epicentre of the crisis. India still appears the brightest growth prospect for the year-ahead; all estimates seem to be converging on a 6.5% growth rate for the current year.
The stimulus package meanwhile will continue to stay, the FM has said there are no immediate plans to even think of an exit strategy, “I will take a view on it as and when we are convinced that the economy has come out of the worst situation and is in the firm path of recovery” he said at the Economic Editors Conference in Delhi last week. That begs the question what defines the path of recovery? The simple long term problem remains – would a ‘recovery’ be sustainable if it has the same basis as the previous high growth trend?
Engineering even this much of a recovery as we see now has come at a cost. Tax revenues in September rose by a bare 0.8%, and are down by 7.6% for the first half of this year. Custom and excise revenue were lower by 33% and 23% respectively for the period April-September, compared to last year. The fiscal deficit by the end of September stood at Rs. 197775 crores, last year it was Rs. 102654 crores. We think it is irresponsible to let investment and consumption decisions continue to be based on these current parameters. Everyone should be aware that this is a ‘punch bowl’ that will be taken away sometime and make appropriate plans. Monetary policy too is looking worldwide at when and how to exit from the current low rates, each country will take its path according to domestic compulsions. But rate hikes are inevitable sometime next year. The ‘happy’ times can only last a short while.
On the agri front, with rains in October, the kharif sowing recovered to some extent, though rice still remains badly hit, the deficiency in acreage sown has dropped from 61% in mid-September to 15% in mid-October. Sugarcane production will be lower this year globally, heavy rain in Brazil has left 10% of the crop unharvested. Raw sugar prices can surge to 30 year highs by December-January, according to some commodity analysts. Imports by India therefore will bear the brunt of this price rise. Bitter-sweet times ahead.
On the squabbling on the political front, the less said the better.