INFLATION MAGIC

Inflation plummeted to a three year low of 6.62 per cent in January, but gave no respite to common man as prices of essential kitchen items like onion and potato continued to rule high. The inflation rate, measured by movement in wholesale prices, moderated for the fourth consecutive month in January mainly on account of lower price rise of manufactured goods. The WPI inflation was 7.18 per cent in December and 7.24 per cent in November. It was 7.23 per cent in January, 2012. Food and primary articles have shown higher annual price rise, led by onion (111.52 per cent) and potato (79.07 per cent). Besides wheat, vegetables, rice and cereals too became dearer. Commenting on the inflation numbers, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said it would further decline to 6.5 per cent by March end, but asked the government to release more food stock to ease price situation. "Retail inflation is still high. WPI inflation in primary and food articles are still at higher levels. Efforts should be made to release larger stocks of food articles in the market," Rangarajan said. Retail inflation stood at 10.79 per cent in January mainly on account of higher prices of vegetables, edible oil, cereals and protein-based items. As per official data, inflation in manufactured items category fell 4.81 per cent in January from a year earlier, compared with an annual rise 5.04 per cent in December. Inflation in food items and primary articles category was at 11.88 per cent and 10.31 per cent respectively in January. Fuel prices rose 7.06 per cent in January, compared to 9.38 per cent in December. A likely increase in prices of diesel and petrol will reflect in February inflation number, which will be available next month.

INDUSTRIAL OUTPUT DECLINES

Indicating persistent sluggishness in the economy, industrial output contracted to 0.6 per cent in December due to poor performance of manufacturing and mining sectors and decline in production of capital as well as consumer goods. The industrial output, as measured by the Index of Industrial Production (IIP) had grown by 2.7 per cent in December, 2011. Industrial production growth stood at 0.7 per cent during April-December period of this fiscal, down from 3.7 per cent in the same period of 2011-12, according to official data released here today. Meanwhile the decline in industrial output for November 2012 has been revised downwards to 0.84 per cent from a contraction of 0.1 per cent in the month as per the provisional estimates released last month. The manufacturing sector, which constitutes over 75 per cent of the index, registered a contraction of 0.7 per cent in December in 2012, as against a growth of 2.8 per cent in 2011. The growth in the output of the key sector remained low at 0.7 per cent in April-December last year as against 4 per cent growth in the same period of 2011. The mining output in December last year contracted by 4 per cent compared to a decline in production by 3.3 per cent in the same month in 2011. In April-December, the production in the sector declined by 1.9 per cent, against a contraction of 2.6 per cent in the year-ago period. Capital goods output declined by 0.9 per cent in December, as against a contraction of 16 per cent in same month of 2011. Capital goods output also contracted in the April-December period by 10.1 per cent, as against a dip of 2.9 per cent in the same period of 2011-12. Consumer goods output also saw a contraction of 4.2 per cent in December as against a growth in production by 10.1 per cent. In the April-December period of this fiscal, the growth in the segment was 2.6 per cent as compared to 5.7 per cent in the same period of 2011-12. The dip in the output of consumer durables stood at 8.2 per cent in December, as compared to a growth of 5.1 per cent in the same month of 2011. The growth in the output of these goods was at 3.7 per cent in April-December 2012, compared to 5.1 per cent in same period previous fiscal. The consumer non-durables output dipped by 1.4 per cent in December, as against a growth of 13.8 per cent in the same month a year-ago. This segment grew by 1.7 per cent in the nine-month period of this fiscal, as against 6.1 per cent in the same period of 2011-12. The intermediate goods production also contracted by 0.1 per cent in December, 2012 compared to a decline in output by 1.5 per cent in same month a year ago. During the April-December period, this segment recorded a growth of 1.6 per cent, compared to a contraction of 0.7 per cent in the first nine months of last fiscal. The basic goods output grew by 2.6 per cent in December as compared 5.5 per cent in the same month of 2011. During the April-December period of this fiscal, output of these goods rose 2.7 per cent compared to 6.3 per cent in the nine-month period a year ago. Power generation grew by 5.2 per cent in December last year, as against 9.1 per cent in same month of 2011. The electricity generation in the April-December period this fiscal stood at 4.6 per cent, as against 9.4 per cent in a year-ago period. In terms of industries, 12 out of 22 groups in the manufacturing sector have shown negative growth in December, 2012 as compared to the same month in 2011.

LABOUR SHORTAGE TO PEAK

With the workforce moving from the traditional construction and real estate sectors to service industry like banking, telecom, IT and ITeS, the shortage of labour is expected to go up by 65 per cent in the next 10 years, says a survey. According to a report titled 'Indian Construction Sector – The Great Leap Forward' by Synergy Property Development Services, this shortage in the construction sector will drive the industry to adopt mechanisation and also project management. "Labour shortage is pegged to go up by 65 per cent by the next decade with more workforce moving from traditional brick and mortar industry like the construction and real estate sectors to services industry. "The acute labour shortage in the construction sector is going to drive the industry to go in for large-scale mechanisation and also project management," Synergy Chairman and Managing Director Sankey Prasad said in a statement here today. With the cost of material expected to double in the near future, the sector will have no other option but to adopt and blend in global best practices, the report said. "The next 10 years will be a period of caution and uncertainty, with innovation and technology adoption being the guiding force. Further, rising cost of construction materials and inflation will remain a concern," Prasad said. "With India at the cusp of rapid development, demand for commercial and residential space could be met only through adoption of mechanisation and project management practices," he added.

SUPER QUOTE

"The RBI has been criticised for hurting growth and we are sensitive to that. But one should understand that the person blaming for growth is very articulate and has got proper platforms for speaking up." "However, the person pinched by inflation does not have a platform and I think both the RBI and the government should take care of that part of the population." Subbarao

Making samosa, chappati manufacturing activity

Preparing food items like paratha, samosa, dhokla and chappati for sale is a 'manufacturing activity' and entitled to tax exemptions, ruled an income tax tribunal. "...manufacturing of chappati, paratha, samosa, dhokla constitutes manufacturing activity," said Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT). Giving its ruling in favour of Deepkiran Foods Pvt Ltd, the tribunal said various raw materials like flour, ghee, oil etc., which are used in the manufacturing of food items, lose their individual and independent identity and result in a different and new product. The produced goods, it said, "was not sold to the customer as floor, ghee, etc., but with the change in the form and it attained a different identity and was recognised as a new and distinct article and was sold as a different and distinct commodity." The ITAT further said that Deepkiran Foods, which is a 100 per cent export-oriented unit (EOU) engaged in production of frozen foods, would be entitled to tax exemptions under Section 10B (relating to exports) of the Income Tax Act as it is engaged in manufacturing activity. The company had filed an appeal before the ITAT against the order of a Commissioner of Income Tax (CIT) who had rejected its tax exemption claim holding that making of edible items like paratha, samosa, dhokla, idli, vada and chappati cannot be treated as a manufacturing activity. While ruling in favour of Deepkiran Foods, the ITAT also said the company was granted registration under the Customs and Central Excise laws for setting up facilities storing and manufacturing of food items.

NO LOANS FOR GOLD PURCHASE

The Reserve Bank today directed state and central co-operative banks not to grant loans for purchase of gold in any form in order to check the significant rise in import of the precious metal in recent years. "In view of the concerns...,it is reiterated that state and central co-operative banks should not grant any advance for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds," RBI said in a notification. Presently, these banks are permitted to grant loans against pledge of gold ornaments, but not permitted to grant any advance for purchase of gold in any form. They grant loans for various purposes against the security of gold/gold ornaments as part of their lending policy. The RBI its in second quarter review of monetary policy in October 2012 had said that significant rise in import of gold in recent years was raising concerns and direct financing for purchase of the precious metal could fuel speculative activities. It was then proposed that other than working capital finance, banks would not be permitted to finance purchase of gold in any form. Rising gold imports has caused the current account deficit (CAD)-- which occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers -- to touch a record high of 5.4 per cent in July-September quarter.

PROFIT BOOKING PULLS SENSEX @ YEAR'S LOW

Dragged down by selling in last 30 minutes, the BSE benchmark Sensex today fell by nearly 96 points to close at the year's lowest level of 19,484.77 on renewed worries over economic growth and tepid corporate earnings, extending the losing string to the seventh day. The 30-share barometer moved in a narrow range of about 100 points till afternoon trade, but selling since late afternoon session pulled it sharply down to nearly 6-week low of 19,484.77, a loss of 95.55 points or 0.49 per cent. Scrips like ICICI Bank, ITC, SBI, RIL, ONGC, Cipla, Tata Motors, M&M, Maruti Suzuki, Sterlite, HUL, Dr Reddy's Lab, Hindalco and HDFC suffered sharp to moderate losses today. "Pre-Budget party looks to be over. Sentiment is turning weak. Market may drift lower," said Vijay Kedia, Director, Kedia Securities. In the last seven sessions, Sensex has lost over 520 points due to a combination of profit-booking in bluechips, poor growth prospects and fiscal health worries. The current losing trend is the Sensex's longest since November 2011. Brokers said weak earnings by Hindalco and Canara Bank today after lower-than-expected results from Cipla yesterday also dampened the market sentiment further. Hindalco, Sterlite and Cipla fell over 3 per cent each. The broader S&P CNX Nifty of the NSE also dipped by 35.30 points or 0.59 per cent to a six-week low of 5,903.50. It fell below key 5,900-level to an intra-day low of 5,883.65. Global markets, however, ended in positive zone today. Kishor P Ostwal, CMD, CNI Research Ltd said, "Indian Market made another low with unconvincing volumes. GDP below 5 percent was not appealing. It seems market is scared of the Budget." Yesterday, Central Statistics Office said the country's economic growth rate this fiscal is estimated to be sharply lower at 5 per cent as against 6.2 per cent.

TALENT CRUNCH IS MAJOR HURDLE

Businesses around the world are reporting severe skill shortage which in turn is weighing on their growth prospects, says a report. According to the Grant Thornton International Business Report (IBR), 39 per cent of businesses around the world are struggling to recruit right people, and as much as 64 per cent cited lack of technical skills as the primary problem. "With rampant unemployment in many mature economies; it is rather ironic that business leaders are concerned by lack of skills, but that is the fact today. In the short-term businesses will need to plug these skills gaps with people from outside the organisation as best they can," Grant Thornton in India National Staff Partner Vinamra Shastri said. The talent crunch is dampening the growth prospects of businesses around the world, it said. In India it takes about an average of 96 days for an organisation to recruit skilled workers. The primary challenge faced by as many as 76 per cent of Indian businesses is the shortage of technical or specific skills. Other challenges are shortage of general employability skills such as team work, communications faced by 65 per cent of businesses followed by lack of applicants and required work experience faced by 61 per cent businesses respectively. Shastri further noted that "in the long term they (businesses) need to invest in their internal training programmes to mould the people that will help them deliver on strategy, innovate and ultimately grow." The reported shortage of technical skills is as much an issue in developed as emerging economies. It is cited by 61 per cent of the BRIC businesses and 65 per cent of their peers in the G7. A lack of both work experience and qualifications are also mentioned. The impact of these workforce issues on business growth prospects is evident: the IBR reveals that more than one in four businesses (28 per cent) expects their 2013 expansion plans to suffer as a result of skills shortages, rising to more than one in three in the BRIC economies (36 per cent). This has dropped from 35 per cent globally pre-financial crisis when employment levels were much higher – particularly in mature economies.

Urban consumer confidence level slips in Jan

Concerns over spending behaviour and worries about employment prospects dented the confidence of urban consumers in India in January, says a study by financial services provider BluFin. Consumer Confidence Index (CCI) slipped by 1.8 points to 38 in January over the previous month reflecting "no impact of proposed economic reforms (by government)." The index is a key 'aggregate' indicator that assesses the pulse of urban Indian consumers with regard to the economy, spending behaviour and employment. It reflects pessimism at below 50 score and optimism above that.The study is based on the interviews of 4,000 urban consumers in 18 Indian cities, including metros and smaller cities. Suggesting measures to arrest the falling consumer confidence, BluFin CEO Rashid Bilimoria said, "The CCI trends are signalling the urgent need to instill confidence again among consumers through policy reforms aimed at improving economic growth conditions." "With Inflation moderating, hard-hitting policy reforms aimed at restoring growth momentum would be the only recourse for improving employment and income conditions thereby lifting consumer sentiment," he added. A sub index, which rates employment sentiment, has reflected increased pessimism about employment across the country. The employment sentiment weakened by 0.5 points to 43.9 points in January. Similarly, the index which measures spending behaviour witnessed a decline in the period under review by 0.5 points to 24.3 points, suggesting consumers are highly averse towards discretionary spending. "The major factor contributing to the fall in spending was the rising discomfort about borrowing witnessed in Indian consumers. This is a gauge for measuring consumer willingness to spend on discretionary goods backed by bank credit," the report noted. "The prolonged high inflationary period has had an eroding effect on disposable income and its impact on demand would persist for some time. Rising pessimism around employment conditions reflects the prevailing economic growth woes faced by the country," it added. Another sub-index, which measures future expectations was 34.7, indicating consumers were still pessimistic about the economy's prospects. Although, consumers were more comfortable about their present situation with a score of 46. However, consumer sentiment on inflation rose by 0.7 points to 23.9 points.

Indian Consumer confidence slips

The confidence among emerging market consumers has strengthened during last year, as 37 per cent of respondents believe that their personal finances will improve over the next six months, however the mood has deteriorated in India, a Credit Suisse report said. The relative and absolute growth in emerging market consumption over the last ten years has been very strong, suggesting a general upward trend in emerging market consumption and a distinctly downward trend in developed market consumption. Of the eight countries included in the consumer survey, optimism on the financial outlook is strongest in Brazil, China, Indonesia and Saudi Arabia. The mood has continued to deteriorate in India and Russia. Only 28 per cent of our Indian sample expects some improvement in financial conditions in the next six months compared with 36 per cent in 2011 and 40 per cent in 2010. According to the Credit Suisse report, the relative out-performance of emerging market consumption is likely to continue over the next 12 months. According to the survey, consumers are optimistic about the immediate outlook. Around 37 per cent of respondents see an improvement in their financial position in the next six months, while 9 per cent see a deterioration. GDP-weighted real growth in household consumer expenditure for emerging markets has averaged 5 per cent over the last ten years compared with just over 2 per cent for the developed markets. The survey further noted that the higher income brackets are consistently more optimistic across all the countries. In contrast, the outlook presented by the low income groups is a different story. In South Africa, India, Russia and Turkey, the outlook for the low income groups ranges from very poor to lacklustre. Moreover, in many markets, the youngest end of the working-age population has achieved the highest income levels. This is a feature that was also common to China, Indonesia, Russia and Turkey. In Brazil and India, however, the difference in earnings between the age groups was relatively flat, the survey said. Generally, the young age earners are much more likely to spend incremental income on technology and branded consumer goods and are less likely to focus on insurance policies or healthcare expenditure. But, over the long term, as these more affluent consumers mature, spending patterns are likely to shift more strongly toward the likes of healthcare, the report said.