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Business News/ Mint-lounge / Mint-on-sunday/  Weak PMI data, climate fight and Uber’s rise
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Weak PMI data, climate fight and Uber’s rise

Manufacturing index falls to 25-month low; countries spar over climate fund; and Uber's fund-raising spree continues

Photo: Ramesh Pathania/MintPremium
Photo: Ramesh Pathania/Mint

1. Nominal decline in GDP

India’s economy grew 7.4% year-on-year in the July-September quarter, slightly faster than the previous quarter’s 7.1%. However, growth in nominal terms, before adjusting for price changes, slowed to 5.2% from 7.1%. Thus, it appears that a substantial part of the rise in gross domestic product (GDP) growth can be attributed to falling prices. Slower growth in nominal GDP is worrisome on many counts. For example, while a fall in prices can raise the value of recorded real growth, lower nominal GDP will most likely lead to lower tax revenues for the government, while keeping unchanged the stock of outstanding government debt.

2. India manufacturing falters

India’s Nikkei manufacturing Purchasing Managers’ Index (PMI) fell to a 25-month low of 50.3 in November, close to the 50 mark that separates expansion from contraction. The trend in PMI is slightly at odds with the GDP number, which showed 9.3% real growth in manufacturing in the September quarter. According to Markit, softer increases in new orders and output weighed on PMI. Manufacturing employment was reported to be broadly unchanged in November following a marginal increase in the prior month. Meanwhile, the November PMI for India’s services sector slipped and clocked a five-month low of 50.1.

3. Fiscal deficit target on track

India’s April-to-October fiscal deficit was 74% of the full-year target for FY16, better than the 89% deficit in the corresponding period last year. The performance in the first seven months of the fiscal year has been better on almost all accounts—the government’s tax collections, revenue deficit and primary deficit. Finance minister Arun Jaitley, speaking at the Hindustan Times Leadership Summit in New Delhi, expressed confidence that the fiscal deficit target, 3.9% of GDP in FY16, will be met. He also downplayed concerns over the implications of the Seventh Pay Commission’s recommendations on state finances.

4. The yuan’s journey begins

The International Monetary Fund (IMF) included the Chinese renminbi, or the yuan, as the fifth currency in its Special Drawing Rights (SDR) basket. The yuan is set to join the existing four—the US dollar, the euro, the British pound and the Japanese yen—in the SDR basket from October 2016. However, it is only the beginning of the road for yuan’s intended internationalization. Inclusion in the SDR basket means little outside of IMF-related transactions. China will most likely have to ease some of its capital movement restrictions for the yuan to become a more globally acceptable currency.

5. Who will save planet Earth?

Developed and developing countries articulated their evidently diverging views over the issue of funding for fighting climate change in the ongoing UN climate change conference in Paris. A US and European Union-backed draft suggested funding should be provided by not only developed countries but also by those “in a position to do so". Subsequently, the G-77, of which India is a part, and China issued a statement objecting to the apparent attempts by developed countries to dilute their funding responsibilities. This brings to the fore the contentious issue of who is more responsible for the worsening climate scenario: developing countries with high total emissions or richer countries with higher per capita emissions?

6. Uber on the fast track

Taxi-hailing service Uber is reportedly planning to raise up to $2.1 billion in fresh funding, which would value the company at $62.5 billion, according to Bloomberg. With this, Uber is reportedly slated to overtake 80% of US S&P 500 companies in terms of market capitalization. Notably, Uber Technologies Inc.’s market cap is likely to exceed US giants such as Dow Chemicals and General Motors. Meanwhile, four of Uber’s competitors—India’s Ola, China’s Didi Kuaidi, US-based Lyft and Singapore-based  GrabTaxi—have unveiled a global ride-share agreement to take on Uber.

7. Chennai goes under

Chennai has been hit by severe rains causing floods over the past week, disrupting normal life and leading to a reported death toll of above 250. Most of the supermarkets and hotels across the city are either shut or have run out of stock, leading to a surge in prices of food items. Meanwhile, industry lobby Assocham estimated that the floods may cause financial losses of over Rs15,000 crore. Not only are trade, industry and other commercial activities being hit, but common individuals are also bearing heavy financial loss to their properties.

8. RBI governor holds rates

The Reserve Bank of India maintained status quo in its monetary policy meeting on Tuesday, having cut interest rates by a cumulative 125 basis points in the calendar year so far. (One basis point is one-hundredth of a percentage point.) Nevertheless, a big concern for RBI remains the inadequate transmission of its monetary policy easing, evident in the less-than-commensurate reduction in banks’ lending rates. A key reason for holding up the transmission of rate cuts, which has been hinted at in the monetary policy note, is continuing high rates for small savings schemes. Higher deposit rates at post offices have apparently encouraged substitution from bank deposits to small savings, eroding the effectiveness of the monetary transmission mechanism.

9. Eyes on Fed

US economic data continues to be mixed; the ISM manufacturing index fell to a six-year low of 48.6 in November, while non-farm payroll jobs rose by 211,000, higher than consensus of 200,000. Amid such mixed data, US Federal Reserve (Fed) officials appeared to be divided over the issue of raising interest rates, ahead of the Fed’s next meeting on 15-16 December. Federal Open Market Committee member Charles Evans hinted that it might not yet be appropriate to raise interest rates, citing low inflation, while Fed chair Janet Yellen on Wednesday indicated that she was concerned over the adverse consequences of waiting too long to raise interest rates.

10. Good news for exchanges

The Securities and Exchange Board of India on Monday announced changes to regulations that would make it easier for stock exchanges to list. The stock market regulator said shareholders could make a self-declaration of whether they are fit to hold stake in a key market infrastructure institution like a stock exchange, removing ambiguity over to whom such criteria could apply. Valuations for stock exchanges may also improve in light of the removal of a rule that took away 25% of profits to a settlement guarantee fund. BSE Ltd and the National Stock Exchange made a total net profit of Rs1,182 crore in the financial year ended 31 March.

Graphics by Ajay Negi/Mint.

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Published: 05 Dec 2015, 11:30 PM IST
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