June 2012 Economic Affairs

Indian Rupee plunged to an all time low of 56.90 rupees against the US dollar on 22 June 2012 on global risk aversion and demand for dollar. India’s slipping domestic growth, declining industrial output figure, RBI’s stringent monetary policy stance, persistent high rate of inflation and credit rating downgrade by international rating agencies like Fitch and Standard and Poor’s have prompted the worsening of Indian rupee against the dollar. Rupee, given its current trading status, is proving to be Asia's worst performing currency. The currency has also been the poorest performer among the all-Asian currencies this week, on a 5-day basis. So far, the Indian currency had tumbled 6.7 per cent in the year 2012. International credit rating agency Fitch revised the credit outlook of India to negative on 18 June 2012. The agency cited rampant corruption and stalled reform existing in the country as the reason behind the move to downgrade the country's credit rating. The rating agency maintained the India's sovereign rating at 'BBB-'.However, The Union Finance Ministry rejected the agency’s rating and pointed out that foreign institutional investors (FII) have reposed their faith in the Indian economy and have already invested a net 12.3 billion dollar in the first five months of the calendar year 2012 compared to 8.3 billion dollar in the full calendar year of 2011.Another credit rating agency Standard & Poor's had also revised the India’s credit outlook to negative in April 2012. S&P’s in its most recent report on India’s credit outlook released on 12 June 2012 had warned that given its sluggish growth rate and stalled economic policy reforms, India could be the first among the BRIC grouping nations to lose investment-grade rating. The World Bank in its report named Global Economic Prospects released on 12 June 2012, projected Indian economy to grow by 6.9% in the financial year 2012-13. The World Bank report predicted India’s growth increasing to 6.9 per cent, 7.2 per cent and 7.4 per cent in fiscal years 2012-13, 2013-14 and 2014-15, respectively. It estimates monetary policy, long paused reforms, persistent inflation and widening fiscal deficit for the country’s poor growth in 2011.World Bank advised India to take some corrective measures to improve the sinking growth. Indian economy grew by 6.5 per cent in 2011-12, the lowest in the past nine years. The economy had registered an impressive 8.4 per cent growth in the previous two years. While the Indian government had projected the economy to grow at 7.6 per cent in the fiscal year 2012-13, but given the prevailing economic and political situations in the country, the projected growth rate could be hard to achieve. The Union Government of India on 5 June 2012 announced a new trade policy aimed at achieving 20 per cent increase in exports to 360 billion dollar in the fiscal year 2012-13. India's exports grew by 21 per cent and touched 303.7 billion dollar in 2011-1. As the part of the new trade policy, the Union Commerce Ministry had added seven new markets to the focus market scheme (FMS) and an equal number of new markets to the special FMS. Countries like Algeria, Aruba, Austria, Cambodia, Myanmar, the Netherland Antilles and Ukraine have been added to FMS; while countries including Belize, Chile, El Salvador, Guatemala, Honduras, Morocco and Uruguay have been added to special FMS. The FMS and SFMS scheme will help India to explore new markets and promote the product diversification. The highlights of the new trade policy are as follows:1) Government set the export target for 2012-13 at 20 per cent. 2)2 per cent interest subsidy scheme extended till March 2013. 3) Government to announce new guidelines to promote SEZs 4) Incentives for exports from north-eastern states. 5) Foreign Trade Policy document to be more user friendly.6) Single revolving bank guarantee for different export deals. 7) Market linked focus product scheme extended till March'13 for apparel export to USA and EU According to data released by Ministry of Statistics of India on 1 June 2012, Bihar emerged as the state with highest economic growth rate in the country. The state recorded an impressive 13.1 per cent growth in 2011-12. Bihar topped the list for second consecutive year. The state was closely followed by Delhi and Puducherry.