Tuesday, June 2, 2009

Indian Economy: Where does it go from here?

Now, this is not the end of it. This gives birth to a very important question. And that question is weather the worst is over for the Indian economy. Let me park this question for a while and put some facts about the global economy first. Well, I may sound a tad harsh to say that the global economy is poised to see an excruciating year ahead. No matter how much we speak about the signs of economic revival globally, the fact is that the job losses haven’t stopped yet. International trade has seen a nose dive in last 8 months, forcing units to halt production, more job losses, further slump in consumer demand, leading to even lesser trade... more job losses... It’s a vicious circle. The global economy needs to come out of that and it doesn’t happen over night. So the global economy is here to face the worst recession since my grandfather was born.
Hmmm, after all that gloomy tour of the world economy, let’s come back to India. Well, I feel proud to say that it seems that the worst is over for the Indian economy. And there are umpteen reasons why it seems so. The first reason is that India is not an exports driven economy. Exports contribute merely 13.5% to India's overall GDP whereas Chinese exports contribute more than 35% to its GDP.

At the domestic front, consumer demand has improved significantly in the month of Aril and May. At a time when urban demand slowed down in the wake of financial crisis, buoyant demand from rural India provided the necessary fuel to India inc’ to weather economic slump. Be it auto-mobile or cement industry, sales have gone up in last two months. Passenger car sales rose over 4% (y/y) in April, following 1% rise in March. Cement dispatches have also been robust in last two months. Steel and electricity have not been behind either. The telecom sector has been adding 10 million plus mobile subscribers to its kitty and will soon cross the 400 million mark as the total subscriber base. FMCG sector has seen around 15% growth in last quarter. So it’s the rural India which has kept the Indian flag high in the sky.

On top of everything else, the best thing that happened to India is the unexpected outcome of the general election. Beating expectations of a hung parliament, which could have been a bizarre for Indian economy, Indian people have given a decisive mandate to the Congress-led UPA. Our Prime Minister Dr. Manmohan Sing has said that he will fix the economy in 100 days, and I don't doubt his capabilities seeing his proven track record.
All these factors suggest that India has managed to jump out of the lurch. The fiscal bill for the current financial year, which is expected in the first week of July, could also though some positive surprises for the Indian economy. Therefore, I can afford to say that the worst is over for Indian economy and we are heading towards a whopping 10% growth rate somewhere around fiscal year 2012. So what are you waiting for? Cheer up!

2 comments:

  1. A very optimistic view on the backdrop of thundering victory of UPA/Congress party, and too a great extent quite correct also. But still following points needs to look at before we start cheering up:-

    1.Though we are not much dependent on Export, but any country economy cannot grow in isolation. We need to increase our export also to come out of woods.
    2. We are talking about the India's economies strength of Internal Demand. While talking about this we should not forgot that while this current financial crisis was continuing, India's Internal demand was still intact, there was huge surplus in the hands of indian consumer's in terms of savings, surplus money generated from the huge rise in pays of govt and semi govt employees and arrears awarded. But still our economy was hurted very badely in tune with world economies.
    3. Inspite of several stimulas packages announced by the government India Inc's losses have risen by 85% in Q4.
    4. Rising prices of crude and commodities
    5.The state of infrastructure facility in the country. We need to go many miles to build infrastructre facilities which are conducive enough to grow our economy @ 10% on the basis of our own internal demand.
    6. The state of basic necessity in the country, specially in case of primary and professional education, Health etc. Without doing any substantial efforts in these high priority areas can any GDP growth rate be a justifed measure for a state of nation.

    Only money flowing in the stock market cannot be a yardstick to measure the economic conditions.

    I am not a great economist, who understand all the world of economics, but what i can understand is this that Only by the victory of Congress led UPA alliance cannot guarantee a very good economic growth for this country. India cannot grow in isolation. Until and unless there is revival in the world economy expecting a growth rate of 10% is quite optimistic.

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  2. Dear Akash, I can make out that you understand economic issues very well. Yeah...I agree with you on many points you have mentioned and I appreciate your point of view. You are absolutely right that one can't measure economic performance using stock-market yard-stick.

    However, I would like to mention that low prices of commodity and crude have helped Indian economy big way in the last 8-months. Infrastructure, of course, has to support the economic growth. But government spending on infrastructure projects has been the locomotive of Indian economy in the recent past.

    Regarding Indian economy got hurt badly in the wake of global slump, I partially agree with you. Don't you remember the RBI increasing the repo rate like crazy at a time when the major central banks were actually reducing their key rates to support their respective economies. I know it was done to curb escalating inflation in the country, but you have to pay a price for that. So, India had to pay a price of those actions. However, global slowdown also came at the same time and it turned out to be a double whammy for the Indian economy. Now that we have fairly cheaper funds available with quite comfortable liquidity in the system for the last 3-4 months coupled with the fiscal stimuli announced by the government, Indian economy is poised to go for its second innings.

    Okay, the way I see the whole thing is that this is a good break for the economy before it takes off to reach the high-growth trajectory once again.

    Well, thanks a lot for sharing your views; I look forward to see more of your comments...

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