Deepak Lalwani's India Report
Comment of the Day

November 25 2013

Commentary by David Fuller

Deepak Lalwani's India Report

My thanks to the author for his informative report published by LALCAP. It is posted in the Subscriber's Area but here is a brief sample:

The Indian economy grew at 5%, a decade low, for the fiscal year to 31 March 2013. Growth slowed even further to 4.4% in Q1 (April-June 2013) of the current fiscal year to 31 March 2014. The Q2 (July-September) GDP figure is expected on 29 November, and fears remain that growth back to 5% looks optimistic. Investors are increasingly concerned that India is stuck in a stagflation (stagnant growth + high inflation) environment. The wholesale price index (WPI) rose to an eight-month high of 7% year-on-year, driven by more expensive energy and manufactured goods. At the heart of India's inflationary pressure is a sharp rise in food prices which are threatening re-election prospects for the ruling coalition Government, led by the Congress party. Food inflation in October rose 18.2%. In the last 60 months food inflation has averaged over 12% per month. Onion prices have risen from Rs 20 per kilo last December to Rs 100 per kilo last month in Delhi and Bombay. The price of salt has rocketed in East India from about Rs 18 per kilo to well over Rs 100 per kilo. With five state elections in progress, the humble onion's power in toppling past Governments is focussing minds.

David Fuller's view

To state the obvious, governance has never been easy in India's, large and ethnically diverse country. Its coalition governments have been weak and consequently beholden to minority factions. Nevertheless, the Congress Party appointed an impressive Reserve Bank of India Governor, Raghuram Rajan, in September. He soon stemmed the rupee's slump, shown inversely here against the US Dollar, and appears to have intervened again today. Interestingly, with Rajan's appointment India may be halfway to an effective government. The more daunting challenge will occur with a general election in May of next year, at the latest. A lot can happen between now and then but if Narendra Modi can lead the BJP to a decisive victory, India's economy could surprise to the upside.

Meanwhile, India's BSE Sensex Index (weekly & daily) steadied today with the help of a slightly firmer currency, shown above. If the USD/INR rate can firm a little further and trade in the R62 to R60 region, that should help the volatile Sensex to hold near the higher side of its range prior to an eventual upward break.

(See also my comment on 31st October, in response to Email 1, and also Eoin's comment on 19th November: Onions Bring Tears to RBI's Rajan as Prices Surge)


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