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Charts & Analysis

RBI’s 2013-14 Macro Policy in Charts

In it’s macroeconomic policy for 2013-14, RBI has cut rates, the only BRIC country to do so.

I’m going to do a big chart post with nearly all charts from the RBI site. Here you go.

GDP Growth Slowing But Then, So Is Inflation

Estimates of GDP Growth by the RBI is a meagre 5.7%, which sounds like no big deal. However, downside risks show growth as low as 3.8%. Of course, not that the RBI has always been right or even in the ballpark, ever. Another post on that.

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The Inflation Prediction: Lots of Red

Inflation, though, looks to moderate till December. This is as measured by the Wholesale Price Index, an index which measures prices that are exclusively reserved for reporting inflation. If you actually went to any market, you would get higher prices, for the simple reason that you are not reporting inflation.

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The thick black line of 5% is where they want inflation to be in the short term, and 3% in the medium term.

Indications of Service Activity Slowing Down Hugely

Look at the 2012-13 elements of this table and you’ll find that the elements that might indicate a rise or drop in service activity are crashing.

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Current Account Deficit remains high

Let’s go simple on this.

  • We import goods way more than we export. The difference is an obscene number that is more than 10 lakh crores a year.
  • We sorta balance some of this out with software exports and incoming remittances – thank you NRIs.
  • The rest is the Current Account Deficit (CAD) that is about 5 lakh crores a year , or 5% of GDP, or nearly $100 billion.
  • This is bridged by financial inflows: Indian companies borrowing, foreign investors investing etc.

Obviously should the financial flow stop, we are screwed, because we can’t suddenly stop importing things or suddenly start exporting more software. The structure of the CAD is given here:

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Even if you took away Oil and Gold, our trade deficit is very high – at $34 billion. However, it is largely silly to think of life without oil and gold imports, because we’ll pretty much have to exhaust all other imports before we cut those out. However, the point is  – are we exporting more goods if we removed these “outliers”? Answer: no.

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India Gets Large FII Inflows

 

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They’ve actually been putting in a lot:

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These are average monthly flows – so more than $26 billion has come in over the last year, with nearly $20 billion in the last six months alone. (No wonder markets are nearly at highs)

The Yield Curve Comes Falling Down

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Money Supply Growth Within Target

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The RBI projects M3 growth to be about 13%. Since no one cares about money supply in this country other than to their pockets, I will stop talking about this further.

Fuel Prices Remain Supressed

The price of Diesel and LPG that we pay is actually substantially lower than the market prices, even after slight corrections through 50 paise increases every month this year:

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Wage Inflation Above 15%, but “Real” Wages Decline

The graph says it all about how inflation is destroying the economy. Despite being at 15%+ on wage growth, CPI inflation at 10%+ is narrowing the real growth even in this “high growth” phase:

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Conclusion

The only conclusion I can think of is: That’s a lot of charts.

However, more subtly, clues point to slowing growth, and inflation being a real pain at a consumer level. The biggest risk remains: What if foreigners stop investing? They don’t even need to pull out their money – just a slowdown of the current surge in inflows leaves us, macroeconomically speaking, gasping for breath.