India’s PMI in December, similarly to China and Brazil, showed a surprise rise to 54.2 from 51.0 in November. In the Indian case, the surge was widespread and across components. Output jumped to 55.8 in December from 50.5 the previous month, and, more importantly from a forward-looking perspective, new orders surged to 57.9 from 52.8. According to some estimates, India’s benchmark wholesale-price inflation probably eased to 7.40% in December from 9.11% in November (the official figure will be released on 16 January). The food-price index in India fell for a second straight week, declining by 2.9% in the period ending 31 December from a year earlier, the Commerce Ministry said. The country’s inflation reading would still be higher than the levels in the other three ‘BRIC’ nations, Brazil, Russia and China. Consumer prices rose by 6.5% in Brazil, 6.1% in Russia and 4.1% in China last month.
However, China has the scope to loosen fiscal and monetary policy, making it better placed than India to weather a global economic slowdown. India has a currency that is under pressure, an “inflation problem” and a large fiscal shortfall. Industrial output strengthened in November, as cement production increased by 16.6% from a year earlier, after stalling the previous month, according to Commerce Ministry data released last month. Steel mproduction gained 5.1%. The data gives the Reserve Bank of India (RBI), which was following an aggressive rate policy that had begun to dampen growth, some room to hold interest rates steady as it waits for inflation, which has been above 9% for most of the last two years, to ease. Nonetheless, the RBI is unlikely to reverse months of rate hikes when it meets 24 January, unless it gets strong evidence that inflation is cooling.
A crisis of confidence has gripped private sector India as it struggles to forget 2011, which saw growth falter, inflation soar and global investment sentiment turn negative. Investment proposals in India plunged 45% to a five-year low in 2011, as companies halted projects, citing administrative hassles, according to a report in India’s Economic Times, which quoted data from the Centre for Monitoring Indian Economy. In an attempt to arrest the sharp slide of the rupee, the RBI intervened in the forex market for a third consecutive month in November, in its biggest sale of dollars for more than two and a half years. Net inflows into Indian debt so far in January stand at about $2.07 bn, substantially more than the $387.15 million invested in equities. The rupee, Asia’s worst-performing currency in 2011, has borne the brunt of risk-aversion stemming from the Euro-zone's debt crisis, which has magnified concern about India’s high inflation, slowing growth and the risk of an increase in the fiscal deficit. RBI data shows that the foreign exchange reserves shrank by $4.18 bn to $296.69 bn in the week ending 30 December, dropping below $300 bn for the first time since February, after reaching a record high of $320.80 bn in September. However, analysts say that the current level of India's foreign currency reserves is not a cause for concern as it far exceeds the current account deficit and short-term external liabilities.