The week began on a rather turbulent note for the country’s economy. Credit rating agency, S&P warned India that it could be one of the first BRIC nation to get a downgrade. India might lose its investment grading citing slow GDP & political roadblocks to policy-making. Also the ‘BBB-’ long term sovereign credit rating is currently a notch above speculative grade. In April, S&P had revised country’s credit outlook to negative.
But finance minister remained confident about India’s growth story. He dismissed the Standard & Poor’s warning stating that the government is fully aware of the situation and expressed confidence in the country’s economic track record. He added that the S&P report is not based on a fresh rating action. Also, there are no significant events to indicate that India’s vulnerability to shocks has increased, despite slow growth numbers.
And adding woes to the already troubled economy were the IIP numbers. The figures released on Tuesday, presented a rather dismal picture of the current state of affairs. The industrial production growth rate slowed down to 0.1% in April. Contraction in capital goods & dip in manufacturing output are cited as the main reason for such poor show. IIP was 5.3% in April last year.
Here’s sector-wise breakup of the IIP figures. The manufacturing sector grew barely 0.1% as against 5.7% in April 2011. Capital goods output declined by 16.3% against a growth of 6.6% in the same month last year. Mining contracted by 3.1% as compared 1.6% growth in April 2011. On the flipside, consumer durables segment expanded by 5% as against 1.6% last year. These numbers are likely to put pressure on the Reserve Bank to cut its lending rate.
Inflation figures for May were also released in the week. The overall food inflation rose to 10.7% from 10.4% in the same period last year. Vegetables inflation was lower at 49.4% in May.
After six months of backtracking on plans to allow FDI in retail, major retail chains are scaling down their operations. After future group gave away stake to Aditya Birla in its clothing brand Pantaloons, Aditya Birla shuts 50 of its ‘MORE’ stores. Reliance also shut down 1,300 Reliance Fresh stores as it was unable to make money. Experts feel, no decision is expected before 2014 general elections.
The issue of ‘policy paralysis’ of the government is finding an echo in India Inc. Two of the country’s best-known business leaders- Azim Premji & Narayana Murthy have expressed their disappointment with the current state of affairs. Azim Premji said, the country is functioning ‘without a leader’ while, Narayana Murthy criticized the retrospective imposition of taxes and said participation from foreign investors is crucial.
Reliance Communications’ undersea cable business has got an approval for an IPO on the Singapore stock exchange. With the IPO, RCom could raise more than $1 bn. This move will help the Anil Ambani-led company to cut some of its debt burden which stands at $7 bn as of March. The company had been trying to raise funds by selling its telecom assets but has been largely unsuccessful. The company hasn’t specified any date for the IPO, though insiders say, it could be next month.
Aiming at bridging the diesel car supply gap, the Maruti Suzuki board has approved a proposal to merge Suzuki Powertrain India with itself. With the merger, Maruti Suzuki will be able to bring its entire diesel engine capacity under a single management control. SPIL supplies diesel engines and transmissions for Maruti Suzuki’s vehicles. Maruti also has a separate deal with Italian car maker Fiat to source one lakh diesel engines for three years. The company is hoping to get regulatory clearances by December. Maruti, however, has no plans to cut jobs post the merger.
ONGC is set to invest Rs 440 crores in drilling 40 oil & gas wells in the KG basin next year. The proposal is currently with the environment ministry for clearances. The wells would be located in east-west Godavari & Krishna district in Andhra Pradesh. According to ONGC, these blocks are estimated to have 1,000 million metric tonnes of oil. ONGC, which has 24 blocks in KG basin, produces approximately 840 tonnes of oil per day.
And finally, according to the weather officials, the crucial monsoon rains are 50% below average in the week to 13 June. The India Meteorological Department has forecast that rainfall would continue till September. Monsoon was 36% below average in its 1st week after a delay.