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HindustanTimes Sat,25 Oct 2014

Get set for crunch ahead

HT Correspondent, Hindustan Times  New Delhi, August 17, 2012
First Published: 21:28 IST(17/8/2012) | Last Updated: 03:12 IST(18/8/2012)

The Prime Minister's economic advisory council (PMEAC) on Friday forecast that the Indian economy would grow by 6.7% in 2012-13, down from its earlier estimate of 7.5%-8%, amid signs of slowdown in hiring activity.

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This is still a faster clip of growth than last year's 6.5%.

"The economy is expected to grow a shade better at 6.7% in 2012-13," PMEAC chairman

C Rangarajan said, exuding confidence that the manufacturing sector will pick up in the second half of 2012-13.

India's financial administrators are struggling to halt an embarrassing slowdown in the economy, enmeshed in growth slowdown, a free-falling rupee, falling output and rising prices.

Rangarajan recommended early implementation of a much-needed round of reforms.

"For channelising transfer of capital and technology, FDI in multi-brand retail up to 49% may be allowed to attract investment in this sector," he said.

He also said the government should consider allowing foreign airlines to pick up 49% FDI in domestic airlines.

High inflation has prompted the Reserve Bank of India (RBI) to maintain interest rates at high levels hurting corporates' as well families' monthly budgets.

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In the last three years, home-loan equated monthly installments (EMIs) have only gone up.

Home EMIs cannot be compromised, so the man on the street meets his budget by cutting on usual monthly expenses and even on items such as clothing and consumer durables. In other words, higher prices and need to find additional money for EMIs have forced a cut down on purchases of luxuries such as televisions and cars.

The resultant fall in demand have hit companies and hurt job prospects.

"In the last three years the EMI on my home loan has gone up by 25%," said Sudhir Verma, Delhi-based independent marketing consultant. "My monthly fuel bill has doubled. To ensure we don't default on EMIs, we have cut on expenses such as eating out and vacations."

"The only option left is to sell some ancestral property, and pay off a bit of my existing home loan," he said.

Food prices
Monsoon may play havoc

New Delhi: As Asia's third-largest economy, tries to emerge out of a sharp slowdown, a patchy monsoon is likely to play spoilsport by threatening to crimp food output, raise prices and pull down farm GDP necessary for overall growth.

The PMEAC on Friday projected a flat 0.5% growth in India's farm income in 2012-13 and maintained that inflation will remain elevated.

A patchy monsoon trims food output and hits farm income, which supports a third of Indians, or about 800 million people.

Rural spending on most items - from television sets to gold - goes up with adequate monsoon and farm output, aiding economic growth, boosting jobs and investments. A rise in rural consumer spending influences overall spending. For instance, rural buyers account for 40% of India's total motorcycle sales.

Investments
Bet largely on liquid assets

Mumbai: The projected 6.7% growth rate for 2012-13 by the PMEAC has taken the sheen off Indians' preferred investment options - real estate and gold. The two, along with equities, have come under criticism from experts, who are advising against putting money into these three asset classes as they are unlikely to appreciate.

"One should avoid investing in bulk. Rather one should start investing in small quantities in a systematic manner with the objective of capturing the next rally,' said Raghvendra Nath, MD, Ladderup Wealth Management.

Price appreciation in case of real estate too will be slower, he said. "For people who invested in real estate, gold or equities in the last one year, if they are sitting at a decent profit, they should liquidate and invest in liquid assets such as mutual funds and fixed deposits."

Companies
Auto, FMCG to feel the pinch
Mumbai: The PMEAC's growth projection is likely to hit not just the common man but companies as well, who are already scaling down both sales and production targets.

While Tata Motors shut down its truck plant for six days in the April-June quarter, US car major GM was forced to halt production for two days on the back of rising inventories arising out of falling demand. Auto component supplier Bosch too suspended operations for three days.

"Till the time interest rate comes down, there won't be any improvement in the auto sector," said P Balendran, vice-president, General Motors India.

Even the FMCG sector is likely to see an adverse impact.

"Some categories have seen a gradual dip in the growth rate. But overall the sector is growing," said Sameer Satpathy, head, marketing, Marico.

Government
Fuel balm for fiscal deficit

New Delhi: The PMEAC on Friday suggested raising diesel prices and capping the supply of subsidised LPG cylinder in a year to four per family, as a worried government gropes for options to keep the fiscal deficit under manageable limits.

"Priority consideration may be given to a suitable increase in the price of diesel in one or more steps," the PMEAC outlook said while making a case for reduction of subsidy bill to rein in fiscal deficit.

"Supplementary provision of subsidy in excess of Rs. 70,000 crore would be needed unless the level of subsidy is curtailed. Such a large subsidy provision would be a great strain on the fiscal system and would also have significant adverse impact on inflation," it added.

Apossible decline in revenues will make it difficult to meet fiscal deficit targets.


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