Here I am with my views and expectations on the Indian economy once again. This post is coming after a really long time. Well I guess rather than wasting time in this let me get down! (I mean) to writing about the economy.
Macroeconomic indicators show further improvement:
As I have mentioned in my previous posts, the outlook for the Indian economy continue to improve further. And the latest data releases on industrial production, manufacturing PMI and trade come as an eye witness to that. Industrial production has rebounded strongly, as shown in the last two data releases. The IIP recorded healthy growth of 6.8% in Jul ’09, after recording a stellar growth of 8.2% in Jun ’09. The next industrial production data will be released soon on 12 Sep09. I expect the IP growth to be ~ 8% for Aug09 month.
Exports still negative but… Exports growth has been in the negative territory for past nine months on weak global demand. But if we look at the actual levels, foreign trade has already bottomed out in Feb09 as seen in the following graph. On an annual basis also my projections say that positive exports growth is very much in the offing. (Possibly in Sep09)
Agriculture growth remains a cause of concern … but there is a silver lining here also. This year India recorded the worst monsoon season in terms of rain deficiency since 1972, with 24% less rainfall than average. The poor rainfall is going to have an adverse impact on the ‘Kharif ’ crop (summer crop ex. paddy). However, post-monsoon rains could improve the prospects of a better ‘Rabi’ crop (winter crop ex. wheat). Also, the share of ‘Rabi’ crop in the total agri production has been increasing over the years. So if we get a better ‘Rabi’ crop', this will compensate for the loss in the ‘Kharif’ crop. Historically, rainfall has been found to have a strong correlation (0.6%) with agriculture growth.
Overall, India’s growth prospects are quite bright as compared to the developed countries though the poor monsoon has diluted the growth outlook to some extent. What’s your take on it?
PS: In my next post I will try to cover RBI’s take on key interest rate and inflation.
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The production is growing,but should we assume like Robins that all this supply will get sold?Secondly,i think that there is no redressal by the govt of the huge deficit that our country is acconting for due to subsidies and pay-pension bills.This will force govt to print more money(by giving it a fancy name like stimulus etc.)which will inturn not create a real demand for goods but will create only speculative demand and thus inflation.How long these cycles could survive?
ReplyDeleteHi John! I admire you point of view. First, production follows demand. If there is demand then only production picks up given sufficient inventories. Second, the government provides a hand in tough times to help the economy weather the downturn. It basically saves people from getting sacked due to a shut down of various production units. And once the economy is back on track, the government start correcting the fiscal deterioration. Having said that, all these actions from the government lead to another cycle. But that's how it is. The economy has to follow cycle.
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