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Business News/ Politics / Policy/  Inflation, exports data paint mixed picture
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Inflation, exports data paint mixed picture

While wholesale price inflation falls to 5-year low, merchandise exports growth slows to a five-month low

Wholesale price inflation decelerated unexpectedly to a near five-year low of 3.7% in August from 5.19% in July. Photo: BloombergPremium
Wholesale price inflation decelerated unexpectedly to a near five-year low of 3.7% in August from 5.19% in July. Photo: Bloomberg

New Delhi: Two sets of data for August released by the commerce and industry ministry on Monday brought some cheer on the domestic front and disappointment on the external front.

While wholesale price inflation decelerated unexpectedly to a near five-year low of 3.7% in August from 5.19% in July, mostly due a favourable base last year and a softening of food and fuel prices, growth in merchandise exports slowed to a five-month low of 2.35% to $27 billion in the same month.

The Wholesale Price Index (WPI) data was in contrast with sticky retail inflation in August, when the Consumer Price Index (CPI)-based inflation slowed only marginally to 7.8% from 7.96% in July.

Wholesale food price inflation slowed to 5.15% in August from 8.43% a month ago while wholesale fuel price inflation decelerated to 4.54% from 7.4% in the same period.

The slowdown in wholesale price inflation is unlikely to have much impact on the monetary policy of the Reserve Bank of India (RBI), which is focusing on lowering retail inflation to 6% by January 2015. The central bank, which is scheduled to hold its next meeting on 30 September, has left interest rates unchanged at three successive policy reviews. A stable rupee and moderation of global commodity prices is likely to lead to lower inflation in manufactured products in the coming months, said Shubhada Rao, chief economist at Yes Bank Ltd.

“Our analysis shows that moderation in global commodity prices begins to reflect in lower core inflation with a lag of about three months," she added.

In August, India’s merchandise export growth slowed sharply after having grown 7.33% to $27.7 billion in July. August imports grew 2.08% to $37.8 billion, leading to a narrower trade deficit of $10.8 billion.

In August, exports of gems and jewellery, electronic goods and petroleum products contracted 10.3%, 17.7% and 12.9%, respectively while shipments of pharmaceuticals, chemicals and engineering goods grew 7.03%, 2.7% and 22.2%, respectively.

Oil imports during August grew at 15% to $12.8 billion, while non-oil imports—an indicator of industrial recovery—increased 13.8% to $24.9 billion during the same month.

Net service exports during July stood at $6.5 billion, according to data released by the Reserve Bank of India.

The rise in net services exports in July to a five-month high, in addition to a lower-than-expected August merchandise trade deficit, suggests the current account deficit in the second quarter of the current financial year will remain in check, said Aditi Nayar, senior economist at rating agency Icra Ltd.

The growth in exports at the slowest pace in five months shows that global recovery is weak and non-uniform, said M. Rafeeque Ahmed, president of the Federation of Indian Exports Organisations (FIEO).

“While the US and emerging economies are posting good results, Europe has again fallen into contraction. Another reason may be less spectacular growth in petroleum exports largely on account of softening of crude prices which has helped us in managing imports and trade deficit," he said.

A new foreign trade policy for 2014-19 is being prepared by the commerce department and is expected to be ready within a month, which would include strategy, goals, road maps and a time frame for increasing exports.

“This would be comprehensive and composite, focusing on products which are winners and potential winners, targeted global engagements, branding and packaging measures, etc.," the department said in a statement earlier this month.

The department is also preparing to re-align, redraft and synchronize benefits in various chapters of the current policy to bring in more clarity, rationalize the number in schemes and to ensure that provisions are placed in an orderly manner.

It is also working with the finance ministry to ease some of the tax restrictions put on the trade enclaves.

The commerce department has targeted merchandise exports of $340 billion and services exports of $160 billion for the year ending 31 March. During 2013-14, the total value of exports was $465.9 billion with merchandise and services exports comprising $314.40 billion and $151.5 billion, respectively.

The World Trade Organization (WTO) expects global trade to grow by a modest 4.7% in 2014, and at a slightly faster rate of 5.3% in 2015.

“Although the 2014 forecast of 4.7% is more than double the 2.1% increase of last year, it remains below the 20-year average of 5.3%. For the past two years, growth has averaged only 2.2%," it added in a recent report.

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Published: 15 Sep 2014, 11:48 PM IST
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