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INDUSTIAL PRODUCTION GROWTH COLLAPSES: NO IMPACT OF STIMULUS MEASURES

Banks lend even less, park more in SLR- unwillingness of Indian banks to lend has affected the most.

Repo rate reduced by

100 bps to 6.5 per cent

Reverse repo rate cut
from 6% to 5%

Rs 7,000 crore refinance for Sidbi to boost credit flow to SMEs

Rs 4,000 crore facility for National Housing Bank

Banks can classify as priority sector lending loans to HFCs for on-lending to individuals up to Rs 20 lakh

Special regulatory dispensation for banks restructuring loans

Interest rate on overdue bills to be 250 bps lower than BPLR

Companies can approach RBI for buyback of FCCB using rupee resources if the discount is at least 25 per cent of the book value; can prematurely buy back FCCBs using their foreign currency reserves without RBI approval if the discount is at least 15 per cent

The moves announced by RBI are expected to help companies facing a cash crunch access funds at a lower cost and help the economy grow faster. The primary liquidity made available in the system is estimated at over Rs 3,00,000 crore. B.S. 071208

2. Banks lend even less, park more in SLR

Last month’s cut in the statutory liquidity ratio, the percentage of deposits banks need to keep in government securities, helped little in lifting bank lending. Domestic banks, public and private, invested Rs 93,216 crore in SLR papers in November, a 400% rise over October’s Rs 18,690 crore, RBI data showed.
DEPOSITS, CREDIT and INVESTMENTS RATIOS of BANKS in NOV 08

Growth in Nov08 (Rs in Crore)

Deposits

                  NOV     OCT

Non-food Credit

C/D Ratio 74.80   75.43

Investments

I/D Ratio 30.37   28.61

Not just that. Bank credit to companies declined to Rs 70,208 crore in November from Rs 1,09,057 crore in October, a 35% dip. All this happened despite a 1% cut in the SLR by the Reserve Bank of India on November 8. This means banks had cash but were not willing to lend to companies. Also, banks deposited nearly Rs 30,000 crore everyday at RBI’s reverse repo window. The same RBI data shows banks parked a total of Rs 1,10,470 crore at the reverse repo this week till Friday. In the previous week, they deposited Rs 1,53,765 crore with RBI. Ironically, just two months ago, in October, RBI had warned of an excessive rise in bank credit at 29%, year-on-year. How times have changed since? RBI lowered SLR to 24% from 25% effective November 8 to improve liquidity in the economy and to enable banks increase lending. Fe 131208

3. Govt cuts excise duty offers sops for key export sectors bl081108

In a bid to minimise the impact of the global economic slowdown on the Indian economy, the Government on Sunday unveiled a “multi-dimensional” fiscal stimulus package that is expected to help boost output across sectors and stoke growth. The measures include an additional Plan expenditure of up to Rs 20,000 crore this fiscal, an estimated excise duty give-away of Rs 8,700 crore, a 2 per cent interest subvention for the labour-intensive export sectors and steps for improving the financing environment for infrastructure projects.

4. Industrial growth crashes to 0.4%

Even with all the above measures taken by RBI& Govt. India's industrial output shrunk for the first time in many years to record a negative growth of 0.4 per cent in October, stifled by manufacturing sector -- for rescuing which the government announced a stimulus package earlier this month. Output had grown by 5.45 per cent in September, and 12.2 per

cent in October 2007. For the seven-month period ended October, manufacturing sector posted a growth of 4.2 per cent from 10.6 per cent a year ago. Manufacturing sector, which accounts for 80 per cent of the index, declined 1.2 per cent from 13.8 per cent in the year-ago period. Only earlier this month, the government sought to rescue manufacturers by announcing an across-the-board (barring petroleum goods) four per cent cut in excise duty. For the seven-month period ended October, manufacturing sector posted a growth of 4.2 per cent from 10.6 per cent a year ago.

5. Slippage in GDP

The gross domestic product growth slipped from 9.3 per cent in September 2007 to 8.8 per cent in the two succeeding quarters, further to 7.9 per cent in June 2008 and to even lower 7.6 per cent in the September quarter of this year. Quarterly GDP growth has slipped below the 8 per cent mark for the first time since December 2004. The deceleration was caused equally by slowing manufacturing and agricultural growth, which saw growth rates fall from 9 per cent and 4.6 per cent a year earlier to 5 per cent and 2.7 per cent respectively in the latest quarter. Four quarters of slower growth may not be indication enough of a further decline as there have been past instances when GDP numbers have rebounded strongly from a depressed phase. The country recorded a growth of 11.3 per cent in the third quarter of 2003, the highest ever, after plunging to a low of 1.5 per cent in the corresponding quarter of 2002. However, the disquieting trends presented by other macro indicators (see below) make it difficult to predict if a recovery will be as easy this time around.

6. Exports dwindle

Exports, a key engine of growth last year, have also presented a deteriorating picture in recent months. While India’s overall export growth in April-October is a healthy 20.6 per cent, this masks a sharp deterioration in growth in recent months. October 2008 marked the first month in five years when exports actually declined (down 12 per cent) in dollar terms. If the export fall for October is worrying, the sharp slippage in non-oil imports (up just 5.5 per cent), is also a pointer to muted industrial activity in the months ahead.

World Bank forecasts grim 2009 BS101208

World Bank forecast is that the global economy would expand a mere 0.9 per cent next year and world trade volume would fall 2.1 per cent. Developing countries' economies would likely expand at an annual pace of 4.5 per cent while wealthier, developed economies are expected to contract 0.1 per cent, the multilateral development lender said. In developing countries, every 1.0 per cent reduction in the growth rate will mean around 20 million people lost the opportunity to get out of poverty. The negative impact is felt by the Indian economy also.