PMEAC cuts growth forecast to 8.2%, Pranab meets Murthy, Tata among others

The writing on the wall is getting clearer - India's economic growth is slowing down. On Monday, the Prime Minister's Economic Advisory Council (PMEAC) scaled down its forecast for the country's economic growth rate to 8.2 per cent for the current financial year from nine per cent predicted earlier.

Also, on Monday the country's burgeoning auto industry posted dismal results for the month of July - in fact, year-on-year (yoy) domestic sales of market leader Maruti Suzuki were down a sharp 26.20 per cent, the biggest drop in monthly sales since its operations began in 1983. The second largest car maker Hyundai saw an 11 per cent fall and Tata Motors also saw its domestic sales fall nine per cent, while its global sales witnessed a six per cent fall, thus confirming the falling trend.

PERSPECTIVE: The chips are down for India Inc

There is more bad news. The HSBC Markit Business Activity Index, based on a survey of around 500 leading companies, fell to 53.6 in July from 55.3 in the previous month, its third straight decline. However, it remained above the 50 mark that separates economic growth from growth contraction, indicating only moderate growth in the coming months.

The PMEAC said it slashed the growth outlook due to the uncertain global economic outlook, high domestic inflation and weaker performance by industry. The PMEAC, in its Economic Outlook report for 2011-12, also stated that inflation will remain around nine per cent till October after which it would ease to 6.5 per cent by the end of March 2012.

GDP REPORT HIGHLIGHTS >> Country's growth pegged at 8.2% for 2011-12 >> Inflation to ease to 6.5% only by fiscal-end >> Fiscal policy needs to contain demand pressure >> RBI to follow tight monetary policy till inflation shows signs of declining >> Agriculture to grow at 3% as monsoon to remain more-or-less normal >> Industry to expand by 7.1%, against 7.9% last year >> Services to grow at a faster rate of 10% >> Global economic and financial situation unlikely to improve >> Important to increase investments if economy is to grow at 9% >> Investment rate projected to rise to 36.7% in 2011-12 >> Current account deficit projected at $ 54 billion or 2.7% of GDP

On Monday, Morgan Stanley became the latest bank to cut its outlook for Asia's third-largest economy, predicting economic growth in the fiscal ending March 2012 of 7.2 per cent, down from 7.7 per cent earlier.

"A combination of factors - including persistently high inflation, higher cost of capital, a cut in the ratio of fiscal spending to GDP, a weak global capital markets environment, and the slow pace of investment - will cause a further slowdown in growth," Morgan Stanley economist Chetan Ahya wrote on Monday.

A series of policy rate hikes by the Reserve Bank of India (RBI) - 11 times in 17 months - led to rising cost of funds, leading to slowdown in growth. Rising interest rates and rise in international commodity prices, are putting pressure on corporate profitability affecting their investment plans.

"The momentum in the manufacturing sector eased further in July as sequential growth in output and new orders slowed," said Leif Eskesen, chief economist for India and ASEAN at HSBC. The new orders index has seen a steepest fall to 54.5 points in July from a previous reading of 60.1.

PERSPECTIVE: Inflation, interest rate to drive stock market

"These tough times could continue for a couple of quarters. Investment and consumption are expected to improve only from January 2012. By then RBI should stop hiking rates," said Arun Singh, senior economist of Dun & Bradstreet.

The current slowdown is expected to affect the equity markets too.

"The fight against inflation is on only on one front - monetary policy front, affecting the economic growth. But nothing is being done on supply side. Ultimately slowdown will bring down markets too," said Ashish Kapur, chief executive officer (CEO) of Invest Shoppe India.

FM MEETS INDUSTRIALISTS

Finance Minister Pranab Mukherjee on Monday held a meeting with top industrialists, including Ratan Tata, Anand Mahindra, Anil Ambani, Narayana Murthy and Sunil Mittal, to dispel fears over any paralysis in the government.

PERSPECTIVE: A growing list of worries for Pranab

The minister told the leaders that he found the view that there is lack of adequate movement on policies and institutional processes to be based more on perception than facts as several significant policy initiatives had been taken in the recent past and many others were in the pipeline.

During his two-and-a-half hour meeting with the business leaders, he said that the industry should play a proactive role in taking the country to the path of higher trajectory of growth.

JULY AUTO SALES SKID

Growth in automobile sales in India's domestic market continued to dip in July.

Maruti Suzuki India Ltd reported a 26.2 per cent fall in domestic sales for July at 66,504 units, against 90,114 units sold last year. Hyundai Motor India Ltd (HMIL) posted a fall of 11 per cent in sales at 25,642 units, compared to 28,811 units sold in July 2010.

The domestic sales of Tata Motors' commercial and passenger vehicles for July 2011 were 57,990, down nine per cent from 63,559 units sold in July last year.

Bucking the trend, Toyota Kirloskar Motor and Mahindra & Mahindra posted 98.89 per cent and 41.9 per cent jump in sales, respectively.

Courtesy: Mail Today Bureau