As upside surprises go, this was a big one. While we and the market
were looking for a 6.3% year-on-year rise, GDP jumped 7.9% (up from 6.1%
in April-June). This is the strongest figure since the January-March
quarter of 2008 and consistent, on our calculations, with a seasonally
adjusted quarter-on-quarter rise in GDP of 3.3% (13.9% annualised). We
believe this to be the biggest rise the Indian economy has seen since
the quarterly data began in 1996! An extraordinary result and one which
will no doubt make the RBI sit up and take notice. We can safely say
that the chances of a rate move before the end of December have risen
(although we are sticking with the January call for now).
The breakdown of the release showed agricultural GDP rising 0.9%
year-on-year, which in turn implies that ex-agricultural GDP was
up 9% from 6.9% in the previous quarter.
The improvement in ex-agricultural growth was driven both by
manufacturing, where growth leapt from 3.4% to 9.2%, as well as
services (9.3% from 7.8%). Given we already knew from the monthly
numbers that the industrial sector had picked up smartly the
bigger surprise was services. Here, however, one can question the
quality of the improvement as growth in "community, personal and
social services" all but doubled to 12.7% from 6.8%. This is
typically related to government spending.
Financial services actually saw growth slip to 7.7% from 8.1%,
while "trade, hotels, transport and communication" registered 8.5%
growth, up modestly from 8.1% previously.
Today's release will inevitably lead to a raft of upward revisions both
to this year's growth forecast and perhaps those for 2010/11 as well.
Our own 6.2% number for the current fiscal year is certainly looking on
the low side (we estimate quarter-on-quarter GDP would have to be flat
in both fiscal Q3 and Q4 to achieve it), but we will retain our top-end
number for the following fiscal year of 8.5%.
India impact of Dubai Debacle
There are a few observations to make in connection with the developments
in Dubai, which could impact both remittance and trade flows:
Indians living in the Gulf remitted USD27bn in 2007
Roughly 4.5 million Indians live and work in the Gulf of which 2
million are in the UAE
If we assume that 1.5 million of those are based in Dubai then in the
absolute worst case scenario, where all remittances stopped, about
USD 9bn of inflows would be lost (1.5/4.5*USD27bn). This is
equivalent to 0.7% of GDP
Remittances from the Middle East are estimated to account for about
25% of the Indian State of Kerala's economy
USD17.5bn of India's exports went to the UAE in 2008/09 (10% of the
country's total merchandise exports). This compares with USD19.5bn
which went to the US in the same year, making the UAE India's second
most important export destination.
Apart from food items, where demand is unlikely to be impacted that
much (although India's ability to exports such products will be
effected by the drought), the other major export to the UAE from
India is, slightly strangely, "mineral fuels and oils". These
amounted to USD4.7bn in 2007/08 (the latest data available).
Overall, there is likely to some direct impact of the Dubai debacle on
remittances into India as well on exports but, in our judgment, a fairly
small one - certainly within the margin of forecasting error.
No comments:
Post a Comment