INDIAN ECONOMY IS TURNING AROUND FOR GROWTH
The recent data made available to us revealed that demand in
Wholesale price inflation shows demand has not fallen as anticipated and
prices were holding firm. Despite such firm signal for growth the unemployment
may not go down as the younger population is growing every year. The
traditional industries have not been great employers. The generation of employment
was faster in IT sector, garment sector, gems and jewelry sectors beside service sector which are yet to grow at a
desired level. After a very poor march quarter, industrial output, which
accounts for nearly a quarter of
A few economists, of late, felt that stimulus packages brought in by the government since late last year, along with aggressive policy easing by the central bank, appears to be making an impact, given improved car sales and uptrend in cement and steel demand.
It is worth noting that savings and investment rates, which have reached close
to 40 percent due to the structural changes in the economy. This would be able
to sustain an investment rate of 35 percent. During the recent month it became
clear that NRI are sending more money than before and so the foreign exchange
reserves may slowly improve. This fact was revealed by none other than State
Bank of
The main stock index has gone up by more than 40% from its low of early March. FII bought $1.5 billion worth of shares in April and another $296 million recently, after heavy outflows in January and February. However my views are that the sensitive index is still not stable and share market may go further down. My gut feeling is that index may go further down to around 10,000 levels or below should political stability keeps slipping in coming days. Investors should be ready to accept the opportunity for long term investment.
According to well known ratings agency ICRA, the economy is likely to grow 6.5 to 7.5 percent in 2009/10 if the global economy comes out of the slump later this year. But according us the growth rate may not come up soon. We had forecast earlier that Indian’s growth would remain below 6.5% during the year. We stand by our forecast as government stimulus would take time to affect the broader economy of the country. However there is a strong possibility that by 2010 Indian economy would recover at a faster speed. We strongly feel that the high fiscal deficit of central and state governments, which according to some observers has reached nearly 10 percent of gross domestic product, could prove to be an obstacle to growth and undermine the Reserve Bank's aggressive rate cuts. Yet there is a silver lining in the sky. Monsoon is expected to be normal that might trigger better growth and possibilities of lower unemployment.
_________________________________
|