Clear signs of growth slowing down are emerging with deceleration in indicators like industrial output, revenue growth for companies, export growth, auto sales, credit growth and railways freight traffic growth.
Industrial output decelerated to a nine-month low of 7.1% in July from an average of 10.4% in the quarter ended June and 12.4% in the quarter ended March. Aggregate revenue growth of 3,000 companies decelerated to 17% during the quarter ended June 2007 from the recent peak of 31% during the quarter ended September 2006, says Morgan Stanley.
A number of other indicators also corroborate this trend in the last few months. In a recent Assocham survey of 319 CEOs, 79% felt that the conditions in the Indian economy are poised for a slowdown.
RBI’s tightening measures have lifted the mortgage and consumer borrowing rates by about 400-500 basis points from the bottom. Mortgage lending rates are now closer to the peak of 2001 levels. Rupee has appreciated by about 9.1% against dollar since early March. The combined impact and slowdown in export demand from the developed world has resulted in weaker domestic and external demand growth.
Overheating concerns in the economy have been reducing. WPI inflation has eased to 3.5-4% from the peak of 6.4% in March 2007. Property purchase transactions have declined with some pockets already witnessing a decline in prices.
Weakening property demand is also reflected by the 3% year-on-year decline in mortgage disbursement of three large players — ICICI Bank, HDFC and LIC Housing. These three lending companies account for about 42% of the all-India mortgage loan portfolio.
As per Morgan Stanley, signs of a slowdown and the 50-bps cut by the Fed may increase hopes of a policy rate cut by RBI. But RBI is conscious of managing inflation expectations.
The recent rise in global food and oil prices is adding to these concerns. With a possibility of early general elections, it is likely that the government will be focussed on maintaining inflation expectations, it says.
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