Exports Growth Could Taper Off As US, Europe Slows.

 Mumbai: Even as India’s growth indicators point to a clear slowdown in the industrial sector, it could be exports that bear the brunt.

The seasonally adjusted manufacturing HSBC PMI came in at 52.6 for August, down from July’s 53.6, the fourth successive moderation. But more than the fall, economists draw attention to the fact that new export business received by manufacturers in India decreased markedly in August, with the rate of contraction at one of the sharpest in the history of the series.

Driven by a stunning 82% year-on-year increase in July, exports have risen a very strong 54% y-o-y between April and July this year to $108.3 billion. However, as Citigroup points out, in the June quarter, consumption contributed 4.1% to GDP growth and the share of gross capital formation was 3.6%, while net exports contributed a negative 1.7%. Given that both the US and the eurozone could now be on the brink of recession, the growth in exports could soon taper off, say analysts.

GDP data for the three months to June indicated that growth in industry moderated to 5.1% from 6.1% last quarter with deceleration seen mainly in construction and mining.

Also, while consumption has held up so far, a moderation in private and public consumption resulted in headline consumption growth slowing to 5.7% y-o-y in the June quarter from 7.5% y-o-y in the March quarter. Reserve Bank of India (RBI) data corroborate slowing private consumption.

Analysts point out that demand for home loans could be plateauing at 15% levels. The rate of growth of personal loans slowed to 15.4% in July from 18.4% in April this year. Overall, loan growth has slowed to 19.8% y-o-y in the fortnight to August 12, 2011 from 21.3% in March and economists believe it should decelerate further to 17% by March 2012 with high cost of money impacting borrowings.

High interest rates could, in particular, stymie investments which picked up smartly rising 7.9% y-o-y in the three months to June from the low of 0.4% y-o-y in March. Slowing consumption cannot augur well for the economy because tax collections in the current fiscal are running below the government’s budget estimates.

Corporate tax collections are lower by about 18% so far in 2011-12 though indirect tax collections have been stronger at 26.5%. Also, while the growth in investments is encouraging, credit offtake has been slowing suggesting that not too many new projects are taking off. Recent RBI data show that credit offtake has slowed in eight out of 13 critical non-oil industrial sectors in July relative to December last year. What’s also worrying is that India Inc today remains more indebted than it was a year ago, at a time when interest rates remain high. The net debt for a sample of 200 top companies rose 13.3% in 2010-11 over 2009-10 despite heavyweights such as Reliance Industries, Tata Motors and Bajaj Auto paring their borrowings. While some of the increase can be attributed to larger borrowings by oil companies in the wake of rising crude oil prices.

Source : financialexpress.com