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Indian Economy

Fiscal Deficit Woes

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Rupee

An important macroeconomic indicator that matters but does not often connect with the common man is the fiscal deficit target. It is an important parameter to assess how well the government budgets its revenue and expenditure. Hence, if the total expenditure is greater than the total revenue, the government needs to bridge this gap by borrowing money.

Being expressed as a percentage of GDP, the Modi led BJP government had set a target for a fiscal deficit of 3.3% of GDP or Rs 6.24 lakh crore for itself for the financial year ending 31st March 2019. However, by November of 2018 itself, the fiscal deficit surpassed its target and stood at 114.8% of its full-year estimate which translates into a Rs 7.16 lakh crore deficit.

Fall in GST collections, lower than expected disinvestment receipts, farm loan waivers, MSP hikes, disappointing IIP numbers and populist spending measures adopted by the government being an election year, all add to the overall expenditure and are putting further strain on the fiscal deficit.

A majority of recently polled analysts and experts also believe it will be very difficult for the government to meet its target. However, Finance Minister Arun Jaitley still firmly believes that the government can meet this target by ramping up its revenue. It is a matter of pride for the government to meet its fiscal deficit target and show that it is capable of meeting its budgeted expenditure.

 

Indian Economy

Rupee slips further, settles below 71-level against USD

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rupee; dollar; paise

Mumbai | The Indian rupee on Tuesday plunged by another 13 paise to close at one-month low of 71.05 against the US dollar amid strengthening greenback and surging crude oil prices.

At the Interbank Foreign Exchange, the rupee opened weaker at Rs 70.79 then lost further ground and fell to a low of 71.15 against the American currency.

The domestic unit, however, gained some strength and finally settled at 71.05 a dollar, down 13 paise over its previous close.

This was the third straight session of loss for the rupee. The domestic currency Monday plunged by 43 paise to close at nearly one-month low of 70.92 against the US dollar. The Indian unit has lost 64 paise in these three sessions.

Forex traders attributed the rupee plunge to rising crude prices. However, heavy buying in domestic equities and fresh foreign fund inflows restricted the fall in the local unit to some extent.

Stronger dollar against its key rival currencies impacted the rupee trading pattern, they said.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was higher by 0.22 per cent to 95.81 in late afternoon trade.

Brent crude, the global benchmark, was trading at USD 59.81 per barrel, higher by 1.39 per cent.

Foreign funds bought shares worth Rs 159.60 crore from the capital markets on a net basis and domestic institutional investors purchased shares worth Rs 417.44 crore on Tuesday, provisional data showed.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.0298 and for rupee/euro at 81.5048. The reference rate for rupee/British pound was fixed at 91.6242 and for rupee/100 Japanese yen at 65.37.

The 30-share index Tuesday settled 464.77 points, or 1.30 per cent, higher at 36,318.33, while the broader NSE Nifty rallied 149.20 points, or 1.39 per cent, to finish at 10,886.80.

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Indian Economy

Rupee depreciates 10 paise against USD; falls below 71 mark

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Rupee; paise

Mumbai | The rupee depreciated by 10 paise and fell below the 71 per dollar mark in opening trade amid strengthening greenback, sustained foreign fund outflows and surging crude oil prices.

At the Interbank Foreign Exchange, the rupee opened weak at Rs 70.79 then fell further to 71.02 against the American currency, down by 10 paise over its previous closing price.

In a highly volatile trade, the local currency also touched a high of 70.75 per US dollar, showing a rise of 17 paise over its last close.

The rupee on Monday plunged 43 paise to close at nearly one-month low of 70.92 against the US dollar.

Foreign funds pulled out Rs 732.46 crore from the capital markets on a net basis, while domestic institutional investors purchased shares worth Rs 527.49 crore Monday, provisional data showed.

The benchmark BSE Sensex was trading with gains of 296.15 points, or 0.83 per cent to quote at 35,149.71 while the NSE Nifty was trading at 10,785.25, up 47.65 points, or 0.46 per cent.

Meanwhile, brent crude, the global benchmark, was trading lower at 59.68 per barrel higher by 1.17 per cent.

Forex traders said the strength of the US dollar against other currencies weighed on the domestic unit. On the other hand, heavy buying in domestic equities supported the rupee.

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Indian Economy

Industrial Output Disappoints

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India's manufacturing sector

The monthly industrial output or factory output figures were released by the Central Statistics Office (CSO) on Friday. It did not reveal a pretty picture as numbers were significantly poorer than expected. The Index of Industrial Production (IIP) details the output of various sectors in the economy; it is a composite indicator that measures the short term changes in the volume of production of a basket of industrial products during a given period with respect to a chosen base period (eg. either in relation to the same month of last year or the previous month itself). The eight core industries being electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers comprise the majority in terms of weight of the IIP Index.

The disappointing figures from Friday will be taken very seriously by the BJP government as we are quite close to the general elections. The figures are released six weeks after reference month ends. Growth in industrial production in India fell sharply in the month of November, reigniting fears of a slowdown in the economy in the third quarter of the current fiscal year. Industrial Output in November grew by a meager 0.5% from a year earlier, the lowest since June 2017. Factory output had grown a healthy 8.5% in November 2017. Growth came in much lower than expected, A Reuters poll of economists had forecast a growth of 4.1% in November and a Bloomberg poll had expected growth of 3.6% in the same period. Manufacturing output contracted by 0.4% compared to 7.9% growth in the previous month. Mining and Electricity also clocked in lower than expected growth figures. An adverse base effect and post-festive winding down were thought to be the primary causes. Weakness in industrial growth coupled with falling inflation is expected to lead to an easing of interest rates in the following monetary policy meet or at least the MPC will be expected to provide a more dovish tone.

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