Nomura reduces India’s growth forecast to 4.3%
In more worrisome sign for the Indian economy, retail inflation has risen to over three-year high of 5.54 per cent in November amid clear sign that the commoners are going to be hit hard with two-pronged blow of declining growth and rising prices.
The inflation has been propelled mainly by a double digit rise in food prices items, which will directly impact the aam admi.
At the same time industrial production shrank further, and Nomura, a Japanese credit rating agency, cut down growth forecast for the next quarter to 4.3 per cent, rebutting prospect of any positive reversal in the economy any sooner.
The inflation based on Consumer Price Index (CPI) was 4.62 per cent in October, and 2.33 per cent in November 2018. Coupled with it, industrial production shrank for third consecutive month in October by 3.8 per cent, mainly due to output fall in manufacturing, mining and electricity sectors, as per official data released on Thursday.
As per the data released by the National Statistical Office (NSO), the inflation in the food rose to 10.01 per cent. This compares with 7.89 per cent October and (-) 2.61 per cent in the year ago-month. The previous high of CPI was 6.07 in July 2016.
During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October. Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent. Prices of meat and fish rose by 9.38 per cent annually and of eggs by 6.2 per cent in November.
Prices of pulses and related products jumped 13.94 per cent during the month. In the fuel and light category, prices dropped by 1.93 per cent.
The Reserve Bank of India has been mandated by the Government to contain inflation in the range of 4 per cent, with a margin of 2 per cent on either side. In its last monetary police review meeting, the RBI did not reduce the interest rate, apprehending a rise in inflation. The fear has come true.
Meanwhile, showing signs of economic slowdown, Industrial production shrank for third consecutive month in October by 3.8 per cent, mainly due to output fall in manufacturing, mining and electricity sectors, as per official data released on Thursday.
According to the National Statistical Office (NSO) data, the factory output declined by 4.3 per cent in September and 1.4 per cent in August this year, while it grew at 4.9 per cent in July. Factory output, measured in terms of Index of Industrial Production (IIP), had expanded by 8.4 per cent in October 2018.
During April to October, the IIP growth remained almost flat at 0.5 per cent compared to 5.7 per cent in same period previous fiscal. The manufacturing growth rate declined by 2.1 per cent in October as compared to 8.2 per cent a year ago. Power generation growth slipped sharply by 12.2 per cent in October, compared to 10.8 per cent in the year-ago period.
Mining output too fell 8 per cent in the month under review as against 7.3 per cent in the corresponding period last fiscal. Capital goods production, which is a barometer of investment, declined by 21.9 per cent in October compared to 16.9 per cent rise in the year-ago month.
Meanwhile, Japanese financial services Nomura on Thursday said India’s economy is expected to grow at 4.3 per cent in December quarter this year amid concerns over crisis in the NBFC sector. Nomura also believes that the first quarter of 2020 will see a “weak” uptick in GDP growth at 4.7 per cent.
“Domestic credit conditions remain tight as market concerns in the shadow banking (NBFC banking) have persisted too long,” Sonal Varma, Chief Economist, India and Asia, said on Thursday.
Contrary to the market’s current optimism that growth has likely bottomed, Nomura believes it will slide further. It expects 4.9 per cent GDP growth in 2019, down from an earlier estimate of 5.3 per cent, and 5.5 per cent in 2020 against an earlier projection of 6.3 per cent.
In 2021, it sees India’s economic growth at 6.5 per cent. “On financial year basis, we expect GDP growth of 4.7 per cent in FY20, and 5.7 per cent in FY21, suggesting a delayed recovery and below-potential growth through end 2020,” Varma told a media briefing in Singapore, news agency PTI said.