Centre for Monitoring Indian Economy (CMIE) scaled down India’s GDP forecast to 7.8% for 2011-12

Leading research firm, Centre for Monitoring Indian Economy (CMIE) in November 2011 scaled down India’s GDP forecast to 7.8% for 2011-12 from the earlier forecast of 7.9%.

Downward revision in the forecast for the mining index from 4.4% to 3.2%, manufacturing sector from 7.5% to 6.9% and electricity from 9 to 8.7% led to a further decline in GDP forecast for this fiscal. the Reserve Bank had also reduced its forecast for real GDP growth sharply from 8 to 7.6%. The rating agency Crisil had revised its growth estimate from 7.7-8% to 7.6%.

The index of industrial production growth slowed down to 2-4% and the wholesale price index-based inflation growth remained riveted to 9.5% despite sustained efforts by the RBI to rein in inflation by raising interest rates.
The lack of availability of coal in 2011-12 pulled down the mining index and led to delay of thermal projects. As a result the electricity generation forecast was revised.

Analysis

The research firm warned that the economy is headed towards stagflation due to persistent fall in the IIP (Index of Industrial Production) and the high inflation.

The growth in sales of companies, which grew by a handsome 25% in the first half of 2011 was however robust.
Sales of manufacturing companies adjusted for inflation indicated that the IIP under-estimates growth in the manufacturing sector by about 33%. CMIE also noted thatr in the first half, the real sales of manufacturing companies grew by about 9%, indicating robust demand for industrial goods.

Though profit margins of the corporates later declined because of an increase in raw material cost and interest rates, it is still robust and way above the low margins seen in the years 1999 to 2002. The net profit margin of the listed non-finance companies fell to 6.4% in June 2011, but between March 1999 and December 2002 they never touched 6%.

Growth in corporate sales indicates that consumption demand continues to grow well. Kharif sowing this year was higher than last season.

Agricultural production was estimated to grow by 2.9% after a robust 6.6% growth in 2010. Estimation of growth in agricultural production indicated robust domestic consumption demand in in 2011-12.