Think tank: India PVC growth hit as rupee plunges

30 August 2013 09:38  [Source: ICB]

The weaker Indian rupee is already damaging growth in the country's polyvinyl chloride (PVC) market.

"Imports of PVC have fallen over the past couple of months. This is partly because we are now in an off-season, but it is also thanks to higher costs for importers and all the uncertainty over the currency. Nobody knows which way to hedge," said a source with an Indian petrochemicals firm.


 The Indian rupee has plunged against the US dollar

Copyright: Rex Features

Indian demand for suspension-grade PVC totalled 2.25 tonnes in the financial year ending 31 March 2013, he said.

"In April to July of the 2013-2014 financial year, PVC demand growth was a very healthy 15-17%, in line with the double-digit increases we have seen over the past 10-15 years. However, since July growth has slipped to 5-7%," the source added.

Just a few months ago the consensus view on India was that while its economy might have slowed down, it was still in pretty good shape, thanks to booming consumption among its middle class and a demographic dividend of a very youthful population.

But now the mood music has changed, following the sharp depreciation of the rupee against the US dollar by 17% since May. A number of other emerging market countries have seen their currencies slide on fears that the US Federal Reserve will start to taper down its quantitative easing (QE) programme. A Mumbai-based chemicals trader said: "India has been hit the hardest because it has become more apparent that QE money was papering over big cracks in our economic growth model."

Other statistics that have come to the fore over the past few weeks include:

A rise in India's current account deficit to $90bn from $8bn in 2007;

A further hole in government finances created by the fact that only around 3% of Indians pay income tax;

A sixfold increase in the borrowing of India's most indebted firms since 2007 to $120bn. Most of that debt, according to Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley, is denominated in US dollars;

Non-performing loans of 10-12% at India's state-owned banks.

"We need better leaders and hopefully that will happen after the next general election," said a source with an Indian petrochemicals producer. "But whether our new generation of politicians will have a clear mandate to govern is not certain because of the complications of coalition politics." The next general election is due to take place by May 2014.

By: John Richardson
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