World Bank: India to grow faster than China in 2010

I was glad to see the World Bank’s latest revisions in its global GDP forecasts on June 22, 2009. Now you must be thinking that I have lost it completely because in that update the World Bank actually revised the global GDP forecasts downward for both 2009 & 10. So why would someone be happy about it? Well, I understand your point. But if you have read my older post on ‘Who will be the next global economic growth leader?’ posted on June 17, 2009, I had written that India will leave China behind in terms of economic growth to become the global growth leader.

Five days later the World Bank comes to support my statement by projecting India to grow faster than China in 2010. According to World Bank India would grow at 8% in 2010, making it the fastest-growing economy in the world. China is projected to grow at 7.7% in the same year. Have a look at the following table.

Let’s talk about the world economy now. Despite the recent signs of improvement in some parts of the world, the prospects for the global economy remain quite uncertain. According to the World Bank’s revised forecasts, the world GDP will contract by 2.9% in 2009 as compared to 1.7% it had forecast just two months and a half ago. To my mind, the global economy will take some time - say four more quarters - to come out of the trauma of recession.

The policy makers will have to be extra careful about all macro indicators and will have to respond to them accordingly. Structural imbalances which have been created over the period need to be tackled now. The US consumers need to learn how to save and the Chinese consumers should learn how to spend. Another major problem for many countries is the mounting fiscal deficit, which is going to take the centre stage once the recovery starts. Inflation, unemployment, protectionism… It will be quite a task for policymakers to tackle these-going-to-be-serious issues. Well, I am also bracing myself for bringing all the actions on the economy front to your notice.

Signs of global economic recovery or just a mirage?

At a time when people around the world were riding high on early signs of economic recovery, the World Bank (WB) brings them back to the ground reality. According to the WB, which has revised its forecasts on global economic growth to -2.9% in 2009, down from -1.7% projected in Mar’09, the recovery is expected to be very gradual. Have a look at the WB's revised GDP forecasts for 2009 and 2010.

One interesting thing you must have noticed about Indian and Chinese economies. Growth forecasts for both the nations have been revised upward. Now, does it say that the decoupling hypothesis was not a complete absurd and it’s just a beginning? May be a couple of decades later this blissful thought becomes a reality.

Well, for me it’s too early to comment on that. Personally, I don’t believe in ‘decoupling’. If you have views on that please share.

Green shoots of recovery in Indian economy

Furthering to my previous post on Indian economy, following are the indicators which indicate that the Indian economy has already bottomed out. Let’s have a look.

Manufacturing PMI back in expansionary zone : India’s Purchasing Managers’ Index (PMI) – which indicates the economic health of manufacturing sector - rose for the fifth straight month in May’09 to an eight-month high of 55.7 as compared to 53.3 in Apr’09. A reading above 50 indicates expansion, while a reading below 50 indicates a contraction.

There are two interesting things to be noted here. One, India's PMI came out be actually higher than that of China’s 53.1 in May09. And the second one is that domestic demand has been the key driving factor behind it. Exports have been on the falling spree since last eight months as the global demand has dried up completely. So hats off to India’s domestic demand which has helped Indian economy weather through these trying times.

OECD leading indicators: The OECD Composite Leading Indicators (CLIs) for India increased by 0.4 point to 93.9 in Apr09, against 93.5 in the previous month. Buy the way this was the first time in last two years when the OECD leading indicators posted an increase for India, indicating that Indian economy has hit the bottom of the economic cycle.

Industrial production turns positive: This has been the latest flavour of the month. Beating all market expectation, India’s industrial production slipped into positive territory in Apr’09. India’s IIP grew 1.4% (y/y) in Apr’09. Industrial production growth for Mar09 has also been revised upwardly to - 0.8% from -2.3% estimated earlier. Core sector also grew 4.3% in the same month. The problem regarding the industrial production being red for quite some time now seems to be subsiding.

All these indicators suggest a possible recovery going forward. However, the government still has to do a lot many things to put the Indian economy back on the high growth trajectory. Let’s wait for the budget, which will be presented in the first week of July’09. The government has to address many issues regarding the growth. Infrastructure should get a proper attention too. At the same time the government will have to maintain a fiscal balance as well. Let’s hope the government will be able to manage it well.

Indian Economy: Where does it go from here?

At a time when most countries around the world are witnessing the worst slump in more than six-decades, India is still growing at the fastest pace after China. Though we are not able to continue with the 9% plus growth rate as seen in the last three years, a 6% plus kind of a growth is very impressive considering the difficult times the global economy is going through. Indian economy grew 5.8% annually in the final quarter of fiscal year 2008-09, which is much better than expected. To make it sound better, the third quarter growth has been revised upward to 5.8%, from 5.3% estimated earlier, taking the overall growth rate to a respectable 6.7% for the whole year.

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!