By Nishesh Dalal, KPMG India
With the new Indian leadership focused on accelerating economic growth and with business confidence at a high, some of niche industries are set to receive the much needed impetus to propel growth. One such industrial segment that is gradually enhancing its growth potential is the huge but relatively unheralded dairy sector.
India is the world’s largest milk producer in the world, accounting for over 17 per cent of total production. The Indian dairy market is estimated to be worth $10bn in annual sales, employs over 90m people and provides an important source of nutrition.
By Sanjeev Prasad, Kotak Institutional Equities
India’s budget – to be unveiled on Thursday – is seen as potentially the most revealing indication so far of the priorities and policies of the new administration of Narendra Modi, the prime minister.
There are high expectations among citizens, industry and investors on what the new budget for the 2015 financial year – which started in March this year – will hold. However, in the short term it may be pragmatism rather than vision that wins the day, given India’s weak fiscal position and economic growth.
Looking toward the medium term, policy announcements in several areas including fiscal consolidation, housing, inflation management and investment (including foreign direct investment and manufacturing) are more likely
The violence in Iraq has put the nation’s oil exports at risk, prompting a rise in global oil prices.
For India, which relies on imports for over 75 per cent of its oil and gas needs, that could spell trouble – especially as a new government takes over in New Delhi, eager to control India’s fiscal and current account deficits while maintaining popular support.
Is that an SUV or not?
Last month, India’s finance minister Palaniappan Chidambaram upped the excise duty on sports utility vehicles (SUVs) from 27 per cent to 30 per cent in the Union Budget.
But now, India’s minister for heavy industries, Praful Patel, has written to the finance minister asking him to withdraw the tax hike, after the auto industry reported the worst monthly sales figures in a decade.
In the middle of January, India’s benchmark Sensex index touched the psychological 20,000 mark. It has since tumbled, closing at 19,271.35 on Wednesday dragged down by profit-taking, pessimism and a disappointing government budget.
Falling sales, excess inventory at dealerships and an increase in taxes – India’s Tata Motors had to take action.
On Tuesday, India’s largest car producer slashed the price of its Manza models by up to almost Rs50,000 ($912), bringing the starting price for the range down to Rs599,500.
Investors have a liking for Palaniappan Chidambaram, India’s finance minister, and his pro-investment reforms that have pulled India’s stockmarkets higher. But they didn’t much like the disappointing federal budget he laid out on Thursday for the year beginning in April.
The benchmark S&P Nifty Index closed down 1.8 per cent after his speech, while the Sensex was down 1.5 per cent.
By Siddhartha Sanyal of Barclays
The macroeconomic backdrop for India’s budget on Thursday remains challenging. In the past six months the government has made considerable progress to rein in the fiscal deficit – but, almost entirely by containing expenditure. Inflation has eased and there has been some progress on the legislative front.
However, on the other hand, recovery in growth remains elusive so far and the current account deficit is set to scale new highs in the current fiscal year. Although commentary from the major rating agencies has improved in recent months, India still remains on a negative watch list and that offers little headroom for Indian policy makers.
The cash-strapped Indian government’s plans to sell a chunk of the Steel Authority of India (SAIL) in the next few weeks as part of a fund-raising disposal of state-owned assets is running into headwinds.
The country’s biggest steelmaker, where New Delhi holds an 86-per-cent stake, on Tuesday posted disappointing quarterly results, increasing expectations that the government will have to offer the shares at a chunky discount – or delay the offering.
Shares in Oil India dropped 1.4 per cent on Friday to Rs532.90, as the Indian government opened an offer for sale for 10 per cent of the state-run company. But with Delhi offering stock for as little as Rs510, many analysts see a buying opportunity – particularly if government plans for energy market reform accelerate.
Even as overall Indian auto sales have suffered over the past year, diesel vehicles have been a rare bright spot. The reason? Because of politically-sensitive government subsidies, diesel costs roughly 40 per cent less than petrol.
In the year ending March 2012, diesel cars were up a whopping 35 per cent, compared to petrol cars falling 15 per cent. Overall car sales rose 2.2 per cent – a far cry from initial forecasts by the leading trade body of 16-18 per cent (which was revised to 0-2 per cent). So what to do? Tackle the price of diesel, or make diesel cars a bit more expensive?
By Anand Shanbhag of Avendus Securities
India’s budget proposals for the year beginning April 1 aim to strike a low-level equilibrium between cutting the country’s fiscal deficit and preserving relatively high economic growth, while facing political opposition. However, the budget contains very little that could pull India’s real GDP growth to the heady levels of 2004-08.
Balanced. Modest. Disappointing. Thus was the gamut of reactions to India’s budget for the fiscal year beginning in April, which Pranab Mukherjee, finance minister, presented to parliament on Friday.
Granted, for a government weakened by a recent electoral thrashing and beholden to unpredictable coalition partners, “balanced” was probably about the best that it could hope for. But it is a far cry from what the Indian economy needs right now. Even though investors had set their sights fairly low, the Bombay stock market still lost 1.2 per cent.
Into a budget generally described as “balanced” or “modest” (not the most ringing endorsement but more on that later) the Indian government seems to have slipped one bombshell: retrospective taxation of overseas transactions which involve assets primarily in India.
The measure is open to interpretation but to many analysts the underlying message was clear: “Vodafone – and others – we are coming to get you.”
By Vikas Khemani of Edelweiss Financial Services
The Reserve Bank of India maintained the status quo on lending rates on Thursday, holding them at 8.5 per cent. While the country’s central bank has continued to highlight inflation risks, this time its concerns arise more from the supply-side: from rising crude prices and the crutch of government subsidies. Clearly, the RBI has acknowledged that demand-side pressures have receded and the ability of businesses to pass on higher input prices to consumers is now limited. Yet, when it comes to inflation, the RBI isn’t entirely out of the red zone.