Annual exports fall for the first time in 7 years; inflation eases

Annual exports fall for the first time in 7 years; inflation eases

The trade deficit for March came in at $7.82 billion, showing a contraction of 13% on a sequential basis and taking the FY10 trade deficit to $102 billion compared with $118 billion in FY09. For the first time in seven years, India’s exports showed an annual decline. They declined by 4.7% in 2009-10 despite a recovery since November.

In March, the Index of Industrial Production (IIP) registered a growth of 13.5% year-on-year (y-o-y). The manufacturing segment recorded the highest growth rate of 14.3% y-o-y (against a 0.3% contraction in March 2009), followed by the mining and electricity segments with 11% y-o-y and 7.8% y-o-y growth, respectively. For FY10, the IIP growth stood at 10.4% y-o-y, which is significantly higher compared with the 2.7% growth during the corresponding period a year ago.

Inflation for April has eased to 9.6% compared with the previous month. The easing up of inflation coupled with global negative news flows takes away the pressure relating to an immediate rate hike by the Reserve Bank of India (RBI).

Also See Losing Steam (Graphic)

Globally, the European Union announced a bailout package of nearly $1 trillion for Greece. However, this package does not come easy for Greece, which will have to respond with a harsh austerity drive.

The credit offtake (non-food) registered a growth of 18.6 % y-o-y, higher than 18% y-o-y growth seen during the previous month. The credit-deposit (CD) ratio expanded to 70% from 69.8% as on 30 April. Meanwhile, the incremental CD ratio, too, increased to 88.2% for the period under review compared with 79.9% seen during the previous month.

Excess liquidity in the system is showing signs of receding as a result of the hike in the cash reserve ratio with banks parking an average of Rs39,700 crore worth of money with the RBI under the reverse repo window during the month-till-date (MTD) period.

The outgo due to third-generation auction payout coupled with advance tax payments could further reduce the liquidity in the future.

The yields on 10-year government securities stood at 7.46% as on 21 May, down by 54 basis points from the previous month’s levels. The government securities yields of all maturities contracted on a sequential basis in response to negative news flows relating to the ongoing debt crisis in select European nations and the easing up of inflation compared with the previous month.

During the MTD period, the average daily volumes contracted in the futures and options and cash segments. The total industry average assets under management expanded by 2.9% sequentially during April. The net resources mobilized in equity schemes during April was negative as the redemptions outpaced the resources raised through new and existing schemes. During the MTD period in May, both foreign institutional investments and mutual funds remained net sellers.

The life insurance industry displayed a healthy annual premium equivalent (APE) growth of 19.8% y-o-y for FY10 aided by a recovery in the equity markets as well as the low base of the previous year. Notably, life insurers witnessed a strong growth revival despite being plagued by regulatory concerns during the year without which the APE growth could have been even higher. However, regulatory issues continue to afflict the life insurance space and could hamper the sector’s growth in the near term.

The inflation rate for April came in at 9.59% y-o-y—in line with the consensus estimate of 9.5% y-o-y.

On an annual basis, among the categories, inflation in primary articles came in at 13.88%; that for manufactured products stood at 6.7%; and that for fuel power and light was at 12.55%.

Graphic by Ahmed Raza Khan/Mint