The Telegraph
Since 1st March, 1999
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Better industrial growth likely this fiscal: Crisil

Mumbai, Sept. 18: The Credit Rating Information Services of India Ltd (Crisil) today said that the country’s performance on the industrial production front is set to be better than last year’s 2.9 per cent growth, spurred by upward momentum in construction. This comes despite two risk factors that include hardening of oil prices and a weak monsoon.

In the preliminary, first-cut analysis, Dr Subir Gokarn, chief economist, Crisil, said the main macroeconomic impulses emanating from agriculture are negative while those in construction are positive.

Pointing out that some broad trends that add up to a coherent macro story, Dr Gokarn said that the net impact of an agricultural slowdown and sustained momentum in construction would be neutral for the consumer sectors, whereby a sharp slowdown is unlikely.

Crisil’s monthly review added: “While cyclical sectors like commercial vehicles have their own dynamics of boom and bust, going by past patterns and our view on current triggers, our view is that the boom in these sectors is likely to persist. The analysis of these sectors suggests that a selective, muted economic recovery is likely to persist at least until the end of the current fiscal.”

Pointing out that the current recovery in industry will continue in the short-term, Crisil said that the buoyancy in cyclicals like cement and steel would be maintained, as their growth drivers are not significantly related to agricultural performance. Although capital goods show an up-tick in July due to transport equipment, the machinery and equipment segment is yet to show any noticeable pick-up.

The rating agency, however, warned that despite such factors, the industry is bound to take some hit on account of early deficiency of monsoon and that increasing oil prices could only exacerbate the downward pressure.

On inflation, Dr Gokarn said that the prices of oilseeds have risen, reflecting the impact of the weak monsoon on price expectations. Secondly, sectors like textiles showed a sharp increase in price, along with faster growth of production.

“This is characteristic of a demand boom and bodes well for near term performance,” he added.

Commenting on the bailout of the Unit Trust of India (UTI), he said that the amount of Rs 14,651 crore is “somewhat misleading” in its budgetary implications for the current fiscal. Noting that the actual burden in the current year will be much less, the agency estimated it to be Rs 3390 crore under the worst-case scenario.

“The quantum of funds needed for a bailout would depend on the direction of asset markets. In a scenario where UTI’s equity portfolio rises by 141 per cent, there is no need for a bailout. This is however, unlikely,” it added.

The apex bank's announcement to auction 15-year and 20 year government paper to mop up excess liquidity present in the markets was also likely to stem the downward movement of the yields, it added.

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