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Inflation dips to near 5-year low

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Wholesale price inflation tumbled to an almost five-year low of 3.74% inAugust as food items witnessed moderate increases and petrol turned cheaper, showed official data on September 15. The decline in global crude oil price — which helped the monthly price increases in diesel to come to an end — analysts said, could help inflation to moderate further in the next few months, although potential impact of rough weather and late sowing on summer crops continued to pose some risk. This, however, may not be enough to convince the Reserve Bank of India to ease key policy rates any time soon, as it is more focussed on retail inflation, which it wants to contain at 6% by January 2016. Retail inflation eased to 7.8% in August against 7.96% in July, but was still higher than the record low of 7.46% in May. The government also revised up the headline WPI inflation for June to 5.66% from 5.43% announced earlier. Some analysts viewed the drop in WPI with caution, as the sharp fall in primary food inflation to 5.15% last month, compared with 8.43% a month before, came off a favourable base (it was as high as 19.2% in August last year). The month-on-month build-up of inflation was lower in August than in July. Moreover, core WPI inflation (non-food manufactured) fell to 3.5% in August (a seven-month low), compared with 3.6% a month before. Nine out of 11 sub-sectors that constitute the core WPI index witnessed a month-on-month uptick in August, highlighting that producers retain some pricing power, said Aditi Nayar, senior economist at ICRA. Wholesale price inflation in manufactured products fell slightly to 3.45% in August against 3.67% a month before. Fuel and power inflation in August eased to 4.54% compared with 7.4% in July, mainly because of a sharp fall in inflation in petrol to -0.15% from 5.9% in July.

India\'s GDP to rebound to over 7% in 2-3 years: Mayaram
India is following economic growth inducing policies and is confident that the GDP will rebound to over 7% in 2-3 years, Finance Secretary Arvind Mayaram said while emphasising that business confidence is back. Making an intervention during the G20 Deputies Meeting, Mayaram said the Indian Government announced a slew of policy reforms and Budget reflected this in full measure. \"From 4.7% growth in the last fiscal, the Indian economy grew by 5.7% in Q1 of the current financial year 2014-15. Business confidence is back and even though still tentative, growth in industrial sector, specially manufacturing, is showing an uptick. \"We are confident that by pursuing growth inducing policies, the Government would contribute fully to going back to a +7% growth within two to three years,\" he said. He further said the policies pursued by the Emerging Market Economies (EMEs) to bring growth back have been effective and India stands committed to the incremental 2% growth in the global GDP. Mayaram, however, pointed out that while it would be imperative for the EMEs including India to continue the path of structural reforms, the uncertainty and volatility in external environment is worrisome and needs the attention of the G20. \"As the US Fed withdraws from unconventional monetary policy, there will be an overhang on asset prices in the Emerging Markets and therefore, volatility in the currency markets,\" he said. The decision on the exit from the Quantitative Easing (QE) programme that came in after the US FOMC (Federal Open Market Committee) meeting yesterday had an impact on the currency markets of many of the emerging market economies. \"The strength of G20 lies in taking international collaborative actions and not limiting to the individual country growth strategies. This concern was also raised by Mexico,\" the Secretary said. Mayaram said the as discussions are taking place on domestic policies and actions, \"we should also be discussing\" G20 driven collaborative solutions which would reduce the impact of the possible near term repricing. While countries would have to take actions commensurate with the space available to them, as IMF has themselves noted, macro prudential policies would be ineffective during downswings, he said.

FIIs pour in Rs 17,000 crore in two weeks of September
Continuing to bet on the government’s reforms agenda, overseas investors have pumped in a whopping Rs. 17,000 crore in the Indian capital market since the beginning of this month. Net investments by foreign investors in the equity market were Rs. 6,665 crore ($1.1 billion) from September 1 to 12, while they infused a net amount of Rs. 10,432 crore ($1.72 billion) in the debt market during the period, taking the total to Rs. 17,098 crore ($2.8 billion), as per the latest official data. Market analysts maintain that overseas investors ( Foreign Institutional Investors, sub-accounts or foreign portfolio investors) have been betting on the Indian market mainly on account of the reforms agenda of the new government at the Centre. They anticipate that inflows would continue in the coming months on a slew of measures announced by the government. Since the beginning of the year, foreign investors have made a net investment of Rs. 1.98 lakh crore ($33 billion) into the country’s securities market. This includes a net investment of Rs. 85,000 crore in equities and Rs. 1.12 lakh crore into debt market. FIIs, the main driver of the equity market, have helped push up the benchmark BSE Sensex by 1.58 per cent so far this month and is now moving above 27,000 level. Strong inflows in the recent months have taken the cumulative net investments of FIIs into India to $204 billion, or Rs. 9.88 lakh crore, in nearly 22 year period. This is based on the data since November 1992 when the FIIs began investing into Indian markets and includes about $160 billion investments into equities and about $44 billion in debt markets. From June, FIIs along with sub-accounts and qualified foreign investors have been clubbed together by market regulator SEBI to create a new investor category called Foreign Portfolio Investors.

Net FDI inflows on track to top $30 bn this fiscal: Nomura
Foreign direct investment inflows to India are expected to gain further momentum and net FDI inflows to the country could cross $30 billion mark this fiscal year driven by improved investor sentiment, a Nomura report says. According to the Japanese brokerage firm, net FDI inflows is on track to top $30 billion and this would reduce India’s external sector vulnerability. Net FDI into India rose sharply to $11.5 billion in the first four months of FY15 (April-July) from $8.4 billion over the same period in FY14, the report said. “Based on the current run rate, we estimate that net FDI inflows could rise above $30 billion in FY15 (amounting to 1.4% of GDP),” Nomura said in a research note. Citing the various factors that are likely to boost FDI inflows, Nomura said: “investor sentiment has improved, domestic confidence has revived, growth is on a recovery path and the government is focused on improving the ease of doing business.” Sector wise, telecom, pharma and financial and business services were the largest recipients over the first three months of this fiscal year. “In our view, the large inflow in July could be partly due to fund-raising in the e-commerce sector,” it added. According to official data, FDI flows to India surged by about 34% to $1.92 billion in June. During April-June in this fiscal, the foreign inflows recorded a growth of 34 per cent. FDI was at $7.23 billion in April- June, 2014-15 compared to $5.39 billion in April- June 2013-14, as per the data by Department of Industrial Policy and Promotion. In 2013-14, FDI inflows in India were $24.29 billion against $22.42 billion in 2012-13. The government is taking more steps to boost FDI in the country. It has raised the foreign investment limit to 49% in defence manufacturing and relaxed the policy in construction sector. The government has also proposed to increase the FDI cap in insurance to 49%.

India, South Africa trade of over $ 11 bn remarkable
In the context of economic turmoil and global recession, the estimated $11.15 billion trade between India and South Africa in fiscal 2013-14 was a remarkable development, Agriculture Minister Radha Mohan Singh said in New Delhi. Singh conveyed this to South African Agriculture Minister Senzeni Zokwana when the two ministers met and discussed the trade prospects between the two countries, an agriculture ministry release said. Singh also requested Zokwana to increase the import of grapes, wheat, sugar and cotton from India, it added. Regarding the pending India and Southern African Customs Union (SACU) Preferential Trade Agreement, Singh said: “We together could secure our economic progress against fluctuations in the western countries by early finalisation of the SACU preferential trade agreement.” During the meeting, Singh expressed the hope that South Africa would facilitate successful implementation of the initiatives under the India-Africa Forum Summit. The third edition of the India-Africa Forum Summit of leaders is due to take place here this year, though no dates have been announced so far.

India signs ASEAN trade deal
The Government of India signed the long-pending pact on services’ trade and investment with the Association of Southeast Asian Nations (ASEAN) on September 8. India and ASEAN already have a free trade agreement (FTA) on goods; it took effect in 2010. Once the FTA in services and investment gets ratified, the entire set of pacts will become a Comprehensive Economic Partnership Agreement. “The pact will provide a commercially meaningful market across ASEAN for our professionals, including those from the information technology and IT-enabled services sectors. The Philippines is completing its domestic procedure and might sign soon,” said an official in the department of commerce. The official said each ASEAN member had tabled an individual schedule of commitments on operationalising the deal. India has tabled three such schedules — one for the Philippines, one for Indonesia and one for the remaining eight states. Signing of the agreement was supposed to happen in Myanmar’s capital of Nay Pyi Taw last month, during the ASEANIndia economic ministers meeting. However, Sitharaman suddenly cancelled her going, choosing to stay here for the function to launch the Pradhan Mantri Jan Dhan Yojana. A senior commerce department official told Business Standard, that although India had signed the deal, a final call will be taken during the India-ASEAN summit scheduled for November in Myanmar, to be attended by Prime Minister Narendra Modi and other heads of government. It was presumed that when to operationalise things and related details would be decided then or earlier, a senior official told Business Standard. The deal was negotiated and agreed upon in December 2012, under the previous United Progressive Alliance government. Some of the important articles are on transparency, domestic regulations, recognition, market access, national treatment, joint committees on services, review, dispute settlement and denial of benefits.

Government targets $340 bn exports this fiscal
The new Foreign Trade Policy (FTPs) that will effective from 2014-2019 is going to be “different” from the previous ones, minister of state (independent charge) for commerce and industry Nirmala Sitharaman said today. “Whatever was the structure of earlier FTPs, it would be different from that. The new FTP will hopefully come soon. We are in process of consultations. This FTP will create a stable and strong environment,” Sitharaman said during a media riefing on completion of the 100 days of the NDA government. However, she refused to specify the date as to when the FTP will be unveiled. It was earlier planned that the policy will be launched immediately after the finance budget in July. After that it was scheduled for middle of August which also did not happen. The government has set a target of achieving total exports worth $500 billion in this fiscal, with merchandise and services exports reaching $340 billion and $160 billion respectively. According to commerce department officials, the policy might be released next month. Sitharaman said that the new FTP would include strategy, goals, road maps and timeframe for increasing exports. She also highlighted certain steps that the government has undertaken in order to reduce transaction costs through simplification of documents and procedures. “We are a trade deficit country. There are several products where imports need to be appraised. We will see that the trade deficit level does not cross beyond a manageable limit,” said commerce secretary Rajeev Kher. The FTP is also expected to include measures for services exports, which reached $151.50 billion in the last fiscal while exports reached $314.40 billion in 2013-14. In an effort to increase the country’s manufacturing capacity, Sitharaman said that the government is looking to remove hurdles in order to ensure smooth operation of the special economic zones (SEZ). SEZ contribute to about 25 per cent of the country’s total exports. According to the minister a decision on minimum alternate tax (MAT) and Dividend Distribution Tax (DDT) will be announced soon to provide relief to the SEZ units and developers. To help developers earn faster returns, the government is also mulling the option of dual usage. This means SEZs will be used for manufacturing as well as for exporting purposes. There will be clear demarcation on processing and non-processing zones with clear indication of incentives, said Kher. On the issue of relaxing import duties on gold, Sitharaman said there are no immediate plans to reduce the duties.

Indian auto industry can touch $300 bn mark by 2026
Revenues of the Indian auto industry can rise 5-fold to hit the $300 billion mark, and volumes can log in over 3-fold increase to around 76 million units by 2026, according to a report. As per the Vision 2026, prepared by ICRA Management Consulting Services (IMaCS) as an input for the Automotive Mission Plan (AMP) 2026, passenger vehicle sales will grow to 13.4 million units per annum from 3.1 million in FY14. It said commercial vehicle sales will rise to 3.9 million units from 0.7 million in FY14; of two-wheelers, to 55.5 million units from 16.9 million, and of three wheelers to 3 million units from 0.8 million units. It is estimated that the Indian auto industry will grow to 75.8 million units by FY 2026 as compared to 21.5 million units in FY14. “Vision 2026 will enable the Indian auto industry to contribute around 13 percent to GDP, generation of additional 100 million jobs and attract more than $80 billion in investments,” it said. According to it, vehicle export revenues are expected to touch $40 billion by 2026 from $8 billion in FY14, while the component exports are expected to rise to $74 billion over $10 billion in FY14. As per the document, over the next 10 years there will be a shift in global trend with 75 percent of incremental demand expected to come from BRICS and emerging economies. It also expects the proportions of A and B segments (compact cars) to rise sharply in the next decade. It further anticipates India to be among the top three automotive markets in the world. The document also lists various factors like creation of infrastructure, human resources and incentivisation as the enablers to achieve the targets under the Vision 2026 plan. The AMP 2026 is under formulation but the economic slowdown in the last three years that resulted in a demand slump is expected to force the Indian auto industry to miss by up to 25 percent of the targets set in AMP 2016. The auto industry had set an ambitious target under the AMP 2006-2016 to take its annual turnover to $145 billion with special emphasis on export of small cars, MUVs, two and three wheelers and auto components. AMP 2006-2016, announced in 2006, had set a goal for India to become the “destination of choice in the world for the design and manufacture of automobiles and auto components with output reaching a level of $145 billion accounting for more than 10 percent of GDP and providing additional employment to 25 million people by 2016”.

India’s drug industry to touch $48 billion by 2018
India’s drugs and pharmaceuticals industry is likely to post total sales of Rs.2.91 trillion ($47.88 billion) by 2018, with an average yearly growth of at least 14%, aided by a rapidly growing domestic market and the newly emerging export opportunity as patents of at least a dozen blockbuster drugs in the US expire in the next three years. “During 2014-2016, about $92 billion worth patented drugs are expected to go off patent in the US as compared with $65 billion during 2010-12,” says an industry analysis report released by Care Ratings, India’s second largest credit rating agency. The domestic drugs industry, which is valued at Rs.1.6 trillion at present, according to Care Ratings, is also expected to grow in the local market with aggressive rural penetration by drug makers, increased government spending on health and growing health awareness among people. The large number of drugs going off-patent in the US presents opportunities for local generic drug makers including Sun Pharmaceutical Industries Ltd, Lupin Ltd, Dr Reddy’s Laboratories Ltd and Cipla Ltd among others. Some of the important drugs whose patent will expire this year include Teva Pharmaceutical industries Ltd’s multiple sclerosis brand Capaxone, which had sales of $4.3 billion in 2013, AstraZeneca SA’s hyperacidity drug Nexium, which had sales of $3.9 billion, and Boehringer Ingelheim’s cardiac drug Micardis, which had sales of $2.2 billion. Anticipating the opportunity, Indian drug makers are building a strong pipeline of products to be sold in the US and have been filing abbreviated new drug applications (ANDA) to the US Food and Drug Administration (FDA), seeking approval for generic drugs. They can file ANDAs five years before the patent expiry date. ANDA is a process where generic drug makers seek approval for marketing the copycat version of patented drugs in the US, typically when the patent expires. Once the generic copies hit the market, the prices of these drugs fall, benefiting patients. Therefore, the government also encourages such filings. The US law allows a six-month exclusivity in the market to generic companies that file ANDAs first. During 2013, Indian companies secured approvals for 39% of the total 400 ANDAs filed. This is significantly higher than in 2012 when 37% of 476 such applications got approvals, according to the report. The domestic market will also see a significant growth in sales on the back of increasing affluence, changing lifestyles resulting in higher incidence of lifestyle-related diseases, increasing government expenditure on healthcare through schemes like the Central Government Health Scheme (CGHS), National Programme for Healthcare of the Elderly (NPHCE), Rashtriya Arogya Nidhi (RAN) and Janani Suraksha Yojana (JSY) in the next three years, according to Care analysis. Domestic consumption of drugs, which has grown on an average of 11% in the last five years, currently accounts for about 47% of the total local production, while 53% goes to export markets. The yearly average growth of drug exports inthis period was 19%, which was also primarily driven by increasing demand for generics on the back of patent expiries of several high-value drugs such as Pfizer Inc.’s cardiac drug Lipitor, Roche’s Boniva, and GlaxoSmithKline Plc’s Combivir among others, according to Care Ratings report. India exports pharmaceutical products to more than 200 countries. But US, being the world’s largest generic drugs market, is the largest export market. However, the Care report also highlights risks of the increased regulatory concerns in the US market, which may hamper the revenue prediction for the industry. The US FDA has pulled up several major Indian drug exporters including Ranbaxy Laboratories Ltd, Sun Pharma and Wockhardt Ltd for non-compliance with quality standards in the local manufacturing units. Sun Pharma, the largest exporter of drugs to the US, had to stop exports from one of its manufacturing units in Gujarat in February and has been again put on alert as the US regulator has initiated a surprise inspection at another key unit in the state this week.

FICCI projects economy will grow at 5.6
India\'s GDP will grow at 5.6 percent during 2014-15 and economic activity is expected to continue with this momentum in the second half of the current fiscal, FICCI said on September 14. \"The new government guided by the objective of restoring growth and governance has given very positive policy signals in its first 100 days. We see the confidence amongst investors slowly returning and hope that going ahead, the momentum on implementation front will build up,\" said the Federation of Indian Chambers of Commerce and Industry\'s (Ficci) latest Economic Outlook Survey. While agricultural growth is expected to remain steady despite a delay in monsoon, the industrial sector is expected to grow by 4.7 percent in 2014-15 fiscal. This is 1.6 percentage points more than the growth estimate in the previous survey round conducted in June 2014, the chamber said. Retail inflation is expected at 7.8 percent this fiscal, in sync with the Reserve Bank of India\'s (RBI) target indicated earlier this year. The economists who participated in the survey also felt that the RBI will consider a cut in policy rates only in the first quarter of the next calendar year. The RBI will wait and watch until there were definite signs of inflationary pressure abating, they said. The minimum and maximum range for GDP growth in the current fiscal is indicated at 5.3 and 6 percent respectively, as against 5.3 estimated in the previous round, reflecting optimism, Ficci said. The projection by the economists regarding exports and the current account deficit (CAD) reflected no imminent risks. The CAD to GDP ratio for the fiscal was projected at 1.9 percent. The economists also identified some priority areas for the government like developing a world-class infrastructure, ensuring uninterrupted power supply, resolving labour issues and minimising procedural hassles and fast-tracking approvals.

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This newsletter is compilation of news articles from various business-e-newspapers and in no way is an endorsement or reflection of Embassy of India, Berne views.