Economic Intelligence Unit
Baroda Corporate Center
Bank of Baroda
Mumbai
Weekly Macro Perspectives
April 18 , 2015
1. Agriculture

According to the Indian Sugar Mills Association, Sugar industry is going through
an unprecedented crisis as sugarcane prices rise year on year while sugar prices
drop on surplus production. The continuous increase in sugarcane prices has been
counterproductive as cash-strapped sugar mills have delayed paying farmers for
their produce and build arrears. Sugar production has consistently outstripped
domestic consumption, in the last five years with the 2014-15 production set to hit a
high of 26 million tonnes against a demand of about 24 million tonnes. Sugar prices
have hit a low of Rs 22,000 a tonne which is the lowest in the last six year.

As per the earliest monsoon forecast models, suggests a building El Nino in which
waters of the west (and closer to India) cool down. This suppresses evaporation and
cloud-building. India is likely to be faced with below normal rain during the JuneSeptember season.
2.
Global economic highlights of the week

China grew at its slowest pace in six years at the start of 2015 and weakness in key
sectors suggested the world's second-largest economy was losing momentum.
Gross domestic product (GDP) grew an annual 7.0% in the first quarter, slowing
from 7.3% in the fourth quarter of 2014. Growth in fixed-asset investment (FAI), a
key economic driver, was the slowest since 2000, while industrial output grew at its
weakest since the global financial crisis in 2008.
As per the IMF’’s Global Financial Stability Report, despite an improvement in
economic prospects in some key advanced economies, new challenges to global
financial stability have arisen from lower oil prices, diverging growth patterns and
monetary policies. Expectations for rising U.S. policy rates sparked a significant
appreciation of the U.S. dollar, while long-term bond yields in many advanced
economies have decreased on disinflation concerns and the prospect of continued
monetary accommodation. Emerging markets are caught in these global cross
currents, with some oil exporters and other facing new stability challenges, while
others have gained more policy space as a result of lower fuel prices and reduced
inflationary pressures.
As per World Bank, India continues to be the leading nation in remittances pulling
in USD 70 billion from its global migrant workforce in 2014. The total remittances in


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2014 reached $ 583 billion. However, international remittances sent via mobile
technology accounted for less than two per cent of remittance flows in 2013.
3. Indian economic briefs of the week

The Reserve Bank of India (RBI) allowed banks to offer differential interest rates
based on whether the term deposits are with or without premature-withdrawal
facility. While all term deposits of individuals (held singly or jointly) of Rs15 lakh
and below should necessarily have premature withdrawal facility. All term deposits
above this amount can now be offered ‘the without premature withdrawal’ option
with higher interest.

Wholesale Price Index (WPI) declined at a faster-than-expected annual rate of 2.33%
in March, their fifth straight fall, on the back of falling oil and manufacturing prices.
CPI inflation fell to three-month low of 5.17% for March as compared to 5.37% for
February. The rural inflation declined to 5.58% as compared to 5.79% in Feb-15,
while the urban inflation came in at 4.75% as compared to 4.95% in Feb-15.

The goods exports fell 21.06% in March 2015, the steepest drop in FY15, to $23.95
billion, as demand from key markets such as the European Union, China and Japan
remained low and decline in commodity prices. The export decline was seen across
sectors, such as gems & jewellery, petroleum products, handicrafts, engineering
goods, electronics and agricultural produce. The trade deficit widened to $11.79
billion, despite imports falling 13.44% to $35.74 billion. On a full-year basis, trade
deficit as a percentage of GDP declined to 6.7% in F2015 as against 7.3% in F2014.
Import of gold, however, almost doubled to $4.98 billion during the month as the
restrictions imposed last year were withdrawn.

During the FY15, exports declined by 1.23% to $310.5 billion compared with $314.41
billion in the previous fiscal year. Imports were valued at $138.26 billion in FY15,
16.09% lower than a year earlier.

Electricity generation in 2014-15 grew by 8.4% over last year to 1048.403 billion
units or around 1.05 trillion units. The biggest contributor to the growth was
generation from coal-based power plants, which grew by 12.1% in 2014-15.

As per IMF, India will overtake China as the fastest growing emerging economy in
2015—16 by clocking a growth rate of 7.5% on back of recent policy initiatives, pickup in investments and lower oil prices. While India’s growth rate is expected to
improve from 7.2% in last fiscal to 7.5% this year and next fiscal, China will witness
a deceleration with growth rate sliding from 7.4% in 2014 to 6.8% in 2015 and 6.3% a
year after.
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
The credit growth of SCBs accelerated to 12.6% year-on-year (y-o-y) basis for the
fortnight ended April 3, 2015 as against 9.5% as of March 20, 2015. The sharp
acceleration was driven by financial year factors. On an underlying basis, credit
growth has likely moderated to just about double digit levels in FY15 driven by a
number of factors such as a) disinflation and hence lower working capital
requirements, 2) shift of some borrowers to the bond markets given better rates, and
c) sale of non-performing loans to ARCs (hence loans become investments).
4. Indian money market and government bond review this week

Bond market witnessed subdued momentum throughout the week. After opening
largely steady, gilts continued to trend with hardening bias on cautious
participation ahead of CPI inflation data release. With CPI inflation dropping to
5.17% much lower than market consensus, G-sec market opened on a stronger
footing. As the week proceeded, sudden spurt in oil prices also aggravated pressure
on gilts. However, this momentum was not sustained as the underlying tone of the
market remained cautious.

The overnight call money rate slipped at the money market due to lack of demand
from borrowing banks amid ample liquidity in the banking system.

The benchmark 10-year (8.40% 2024) bond yield was at 7.80% on April 13, 2015 as
against 7.79% on April 17, 2014.

During the holiday shortened week, the weighted average call money rate eased
from 7.55% on April 13 to 7.41% on April, 17, 2015 below the policy repo rate of
7.50%.

The reference rate on 3-month Commercial Paper ruled at 8.48% on April 17, 2015.
The CDs of Rs 400 crore were raised during the week under review.
5. Rupee Movements

During the week, the rupee appreciated from Rs 62.51 per dollar on April 13 to Rs
62.36 on April 17, 2015 on weakening dollar.

India’s forex reserves fell by 2.5 billion to USD 340 billion during the week ended
April 10, 2015.
6. Stock Market

Rising concerns over Greece debt negotiations resulted in a selloff in global stock
markets. The Eurozone finance ministers are due to meet on 24th April in order to
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discuss economic and political reforms to be made by Greece in return for aid.
However, there was some skepticism over whether the meeting will yield results. In
UK, the jobless rate hit the lowest level since July 2008 and its stock index was down
by 1.3%. The US markets were down by 1.3% for the week. Asian indices witnessed
a mixed performance during the week. The Chinese index spurted to its highest
level since March 2008 on expectations of further stimulus measures from the
People's Bank of China. China's gross domestic product for the first three months of
2015 fell to a multi-year low.

The Indian markets were down during the week on growing concerns over fourth
quarter earnings. The BSE Sensex fell continuously during the holiday week from
29044.44 on April 13, 2015 to 28442.10 on April 17, 2015, while the BSE Bankex
slipped from 21620.40 to 21091.13 over the same period.
7. Crude Oil Prices

The U.S. Energy Information Administration reported that crude inventories rose
by 1.29 million barrels to 483.69 million barrels in the week to April 10 against a
forecast of a 4.1 million barrel rise. It is the latest sign that the U.S. oil boom, which
contributed to oil’s steep selloff in recent months, is slowing.

Brent rose above $ 61 the back of news that crude stocks were building up less than
forecasted.
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