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India’s service sector activity lost growth momentum and eased to a six-month low in September due to slow new business inflows amid inflationary pressures and competitive conditions, a survey showed.
The seasonally adjusted S&P Global India Services Purchasing Managers’ Index (PMI) fell to 54.3 in September, the weakest rate of expansion since March, from 57.2 in August.
The PMI data, released at the beginning of every month, is an indicator of the overall health of the economy. The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
While a reading above 50 indicates overall expansion in services activities, a print below 50 shows an overall decrease.
The survey said that during September, both new business inflows and output rose at the slowest rates since March, amid inflationary pressures and competitive conditions, which in turn dampened job creation.
The price pressures, an increasingly competitive environment and unfavourable public policies restricted the upturn in the month, the survey showed.
New orders displayed a similar pattern to business activity, rising for the 14th month in a row but at the slowest pace since March, the survey showed.
Pollyanna De Lima, Economics Associate Director, S&P Global Market Intelligence, said the Indian service sector has overcome many adversities in recent months, with the latest PMI data continuing to show a strong performance despite some loss of growth momentum in September.
There were further increases in new business and output, while companies continued to take on extra workers to accommodate rising demand. September also saw broad stabilisation of input cost inflation and the slowest upturn in prices charged for the provision of services since March.
However, the steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US presented additional challenges to the Indian economy.
On September 22, the US Federal Reserve raised its interest rate by 75 basis points and had hinted at more hikes in the future. This led to strengthening of the US dollar and weakening of other currencies, including the rupee.
Currency instability poses renewed inflation worries as imported items become more costly, and undoubtedly means that the RBI will continue hiking interest rates to protect the rupee and contain price pressures.
India abstains at the UN vote for debate on human rights in China's Xinjiang. (Page no. 3)
(GS Paper 2, International Relations)
India abstained from voting on a draft resolution in the UN Human Rights Council on holding a debate on the human rights situation in China’s restive Xinjiang region.
Human rights groups have been sounding the alarm over what is happening in the resource-rich north-western Chinese province for years, alleging that more than one million Uyghurs had been detained against their will in a large network of what Beijing calls “re-education camps”.
The draft resolution on “holding a debate on the situation of human rights in the Xinjiang Uyghur Autonomous Region of China” was rejected in the 47-member Council after 17 members voted in favour, 19 members voted against, including China, and 11 abstentions, including India, Brazil, Mexico and Ukraine.
The draft resolution was presented by a core group consisting of Canada, Denmark, Finland, Iceland, Norway, Sweden, UK and USA, and co-sponsored by a range of states, including Turkey.
China director at Human Rights Watch, Sophie Richardson, said in a statement that for the first time in its history, the UN’s top human rights body considered a proposal to debate the human rights situation in the Xinjiang region of China.
While the Council’s failure to adopt the proposal is an abdication of responsibility and a betrayal of Uyghur victims, the extremely close vote highlights the growing number of states willing to take a stand on principle and shine a spotlight on China’s sweeping rights violations.
Richardson noted that “nothing will erase the stain of China’s crimes against humanity, laid bare” by a recent report of former UN High Commissioner for Human Rights Michelle Bachelet.
We urge incoming High Commissioner Volker Turk to brief the Council on his office’s report, and we call on states, companies, and the international community to implement the report’s recommendations and hold Chinese authorities accountable for their international crimes.
Serious allegations of human rights violations against Uyghurs and other predominantly Muslim communities in China were brought to the attention of the UN Human Rights Office and UN human rights mechanisms since late 2017.
Editorial Page
Up ahead:Rice insecurity (Page no. 12)
(GS Paper 3, Economy)
Fears concerning a potential ban on rice exports in India, following a ban on wheat exports on May 14, have come true. On August 8, India banned the exports of broken rice and imposed a 20 per cent duty on the exports of various grades of rice amid high cereal inflation and uncertainties with respect to domestic supply.
The rice export restrictions have heightened food security anxieties across the global market as many developing countries depend on Indian rice.
The world rice market is thin, given that 90 per cent of production is consumed domestically. As a result, any small change in exports and imports has an enormous impact on prices, especially if it leads to panic buying of food grains by rich countries.
While the actual impact of the export restriction policy on domestic prices is a matter of empirical scrutiny, and the government has intended to regulate domestic prices and safeguard food security, frequent changes in export policies undoubtedly have long-term ramifications.
India exports rice to more than 130 countries, constituting around 40 per cent of the global rice trade. The decision to curb rice exports has, unfortunately, been taken when global food prices are already rising.
The export uncertainties will affect the credibility of Indian exporters, create a disincentive for future exports, and will enable buyers to shift towards other major rice-exporting countries.
Though Indian farmers in general lack market access, and hence do not take advantage of high market prices, the fall in prices may adversely affect a section of farmers who hope to get a better price for their produce through exports.
The exporters who face the burden of the unfeasibility of exports may pass it on to farmers in the form of lower prices during procurement.
In India, around 49 per cent of rice cultivation depends on groundwater. which is depleting rapidly. As per the latest data available from the Food and Agriculture Organisation (FAO), agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7 per cent in 1993 to 36 per cent in 2022.
Similarly, the total per capita renewable water resources have also declined from 1,909 cubic meters to 1,412 cubic meters during this period.
The water-intensive nature of rice cultivation, along with frequent export restrictions will adversely affect the long-run sustainability of rice production.
Further, India’s export restrictions will adversely affect several low-income and low-middle-income countries like Bangladesh, Senegal, Nepal and Benin, which are among the largest importers of Indian rice.
No respite (Page no. 12)
(GS Paper 3, Economy)
The Organisation of Petroleum Exporting Countries (OPEC) and its allies announced their decision to slash crude oil output by two million barrels per day ahead of the peak winter months.
The decision will come into effect from November this year. The deep production cuts, equivalent to around 2 per cent of global supply, will only tighten the global oil market.
Crude oil prices, which had fallen off the highs seen in June, and hit a recent low of $82 barrel last week, rose above $93 per barrel on Wednesday following the news.
Such sharp supply cuts, driven by the desire to maintain prices, will offset the release of strategic oil reserves that was designed to bring down the price of oil and help consumers at a time when inflation has surged across the world.
After the OPEC+ meeting in Vienna, Timipre Sylva, the Nigerian minister of state for petroleum resources, is reported to have said that, “OPEC wants prices around $90”.
This suggests that $90 per barrel will effectively become the floor price. Such high oil prices will only complicate the task before central banks across the world who have been hiking interest rates to tackle surging inflation.
Following the announcement by the OPEC+ countries there are reports that the US government may “ease sanctions” on Venezuela, paving the way for a potential reopening of US and European markets to oil exports from the country in order to boost oil supplies.
For oil importing countries like India — the country imports around 80 per cent of its requirements — elevated crude oil prices pose problems at multiple levels. Over the past few months, India has in fact benefited from lower oil prices. Recent trade data showed that in September oil imports had dipped to $15.6 billion, down from $17.6 billion in August, with much of the decline due to a fall in crude oil prices — the price of the Indian crude oil basket has declined from $105.59 in July to $97.4 in August and further to $90.71 in September and $90.29 in October as per data from the Production Planning and Analysis Cell.
However, a reversal in prices will increase the cost of oil imports, exerting pressure on the current account deficit. Further, high crude oil prices will also be inflationary.
The RBI’s recent inflation forecast of 6.7 per cent for 2022-23 assumes crude oil to average $100 a barrel. Deep cuts in global supplies, elevated prices, imply little respite from high inflation.
Idea Page
ECI’s overreach (Page no. 13)
(GS Paper 2, Polity and Governance)
These are bizarre times when institutions have developed a propensity to encroach on domains where their intervention is not required. Doing so only creates confusion, which is detrimental to the functioning of a democracy.
On October 4, the Election Commission of India (ECI) issued a letter proposing mandatory disclosure of the “financial implications” of the promises made in manifestos by political parties.
The rationale behind the move, as stated in the letter, is to enable healthy debate on the financial implications and fiscal sustainability of promises made by political parties.
This, according to the ECI, is necessary for facilitating the conduct of free and fair elections. The letter reveals a sharp contradiction with the ECI’s recent public stance on this issue, besides raising serious questions about the overreach of its power by the Commission.
In April, the ECI told the Supreme Court that it cannot de-register political parties for offering freebies to voters and it is up to the voters to decide whether the distribution of freebies is financially viable or if such policies have an adverse effect on the economic health of the state.
However, the agency now wants political parties to elaborate on the rationale for announcing such promises and their financing plan. One wishes that the Commission and other independent bodies showed similar enthusiasm around the issues related to Electoral Bonds.
Two contrasting statements by the ECI in five months raise questions about its independence. Interestingly, the ECI’s letter came after the contentious “revdi culture” remark by the Prime Minister about freebies offered by political parties. Independent watchdog institutions taking cues from the government do not augur well for the health of democracy in the country, especially when such “talking points” demean rights-bearing citizens as passive recipients of dole.
The vocabulary used by the government in this context – revdi, saugaat (gift), freebies, muft (free) — smacks of arrogance and betrays a lack of understanding of the country’s socioeconomic realities and the Indian state’s compact with its citizens articulated in the Constitution. Would the ECI take issue with the Constitution and the Directive Principles outlined therein that provide a definite scaffolding for the idea of a welfare state?
In the past – as well as in recent times – right-wing and conservative governments in several countries have put the health and well-being of their citizens at severe risk in the name of austerity and fiscal prudence.
ExplainedPage
Annie Ernaux: Memoirist of the personal, political and the universal (Page no. 17)
(Miscellaneous)
In Happening (2000), translated into English by Tanya Leslie, French writer Annie Ernaux writes, “Maybe the true purpose of my life is for my body, my sensations and my thoughts to become writing, in other words, something intelligible and universal, causing my existence to merge into the lives and heads of other people.”
In the book, Ernaux recalls the traumatic experience of undergoing an abortion in France in 1963, before it was legalised. She had only been 23 at the time, single and terrified, and the horrors of the experience would never leave her. Ernaux, 82, memoirist of visceral experiences, is the winner of this year’s Nobel Prize for Literature “for the courage and clinical acuity with which she uncovers the roots, estrangements and collective restraints of personal memory.”
Ernaux, who has long been in the running for the world’s most prestigious literary award, is only the 17th woman writer to have won the Nobel Prize since its inception in 1901.
In recent years, other women to have won the award include Louise Glück (2020), Olga Tokarczuk (2018) and Svetlana Alexievich (2015).
A celebrated writer in France, Ernauxhas only been discovered by the English-speaking world with the arrival of her books in translation in recent years.
In 2019, The Years, her autobiography of sorts spanning from her birth in 1940 upto 2007, was shortlisted for the International Booker Prize. It won the Prix Renaudot in France in 2008, and the Premio Strega in Italy in 2016.
Born in Seine-Maritime in Normandy to parents who were grocers, Ernaux began writing when she was in college. Yet, after several rejections, her first book, Cleaned Out, would eventually be published only in 1974.
She was 34 years old at the time, stuck in a difficult marriage and working as a French teacher. Since then, Ernaux has published over 20 books.
After her first three thinly-veiled autobiographical novels, that include Cleaned Out, Do What They Say or Else (1977), and The Frozen Woman (1981), the writer moved on to focus solely on memoirs with A Man’s Place (1983), writing with abandon about her working-class upbringing, the class shame she felt, her ill-fated marriage, her relationship with her father, the romantic liaisons she had had, her mother’s descent into Alzheimer’s and eventual death and her own struggle with cancer. Some of her most well-known works include A Woman’s Story (1987), Simple Passion (1991), and A Girl’s Story (2016).
Economy
World Bank cuts FY23 growth forecast by 100 bps to 6.5% (Page no. 19)
(GS Paper 2, International Institutions)
The World Bank trimmed India’s growth forecast for 2022-23 (April-March) by 100 basis points, projecting that the Indian economy will grow at 6.5 per cent compared to its earlier estimate of 7.5 per cent released in June. In 2021-22, India’s GDP grew by 8.7 per cent.
Economic growth in India will slow down in the fiscal year ending March 2023, as the country is coming off a strong recovery in FY2022 (April 2021-March 2022).
The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook: elevated inflation on the back of higher prices of key commodities and rising borrowing costs will affect domestic demand, particularly private consumption in FY2023/24, while slowing global growth will inhibit growth in demand for India’s exports,” the bank noted in its twice-a-year report on South Asia region.
Private investment growth is likely to be dampened by heightened uncertainty and higher financing costs. The ongoing simplification of various business regulations will help ease the transition by creating new jobs and facilitating business transactions.
Notably, the Reserve Bank of India also last week cut its growth forecast to 7 per cent from an earlier estimate of 7.2 per cent after raising the benchmark repo rate by 50 basis points to 5.9 per cent as it attempts to contain high inflation.
In its report, the World Bank also said that India was recovering stronger than the rest of the world.Despite the mounting challenges, there are also optimistic signs, as some sectors and some countries are recovering strongly.
In India, services exports have recovered more strongly than in the rest of the world, and India’s ample foreign reserve buffers have afforded resilience to the country’s external sector,” the World Bank report pointed out.
India will slow down in the fiscal year ending March 2023, as the country is coming off a strong recovery in FY2022 (April 2021-March 2022).
The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook, the bank noted in its twice-a-year report on South Asia region.
The Indian economy has done well compared to the other countries in South Asia, with relatively strong growth performance bounced back from the sharp contraction during the first phase of COVID.