Rama Krishna Vadlamudi, MUMBAI. email@example.com. Dec. 8
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INDIA'S MACRO PICTURE
Stock markets in India have been following the global trends in the past one year.The global financial crisis, credit crunch, collapse of large financial institutions in the USand Europe, lack of business confidence and severe compression of global trade haveaffected the Indian bourses hugely. Investors in India have been looking toward globalcues rather than domestic economic indicators. As a result, our markets have alsoshownprofound fall in stock prices since January 2008. The fall was more pronounced sincethe middle of September 2008, after the collapse of Lehman Brothers Inc and bailing outof AIG, Fannie Mae and Freddie Mac in the US. Central Banks the world over have beenbattling recessionary pressures through a combination of fiscal incentives and infusion ofhuge liquidity into commercial banks with a view to shoring up confidence among banks.Even though Indian economy is driven more by domestic consumption ratherthan exports, wild swings in foreign capital flows have been impacting the domesticcurrency and other capital market flows. The Central Government has spent hugeamounts outside the Union Budgetwhich include Rs 25,000 crore released to banks aspart of the farm loan waiver package; Rs 39,000 on fertilizer subsidies; and Rs 10,000crore paid to government employees as part of the Rs 25,000-crore salary hike on theSixth Pay Commission Award. The fiscal deficit was estimated to be at 2.5% of GDP atthe end of March 2009 at the time of presenting the Union Budget in February 2008.However, due to the additional expenditure of off-balance sheet items, as mentionedabove, the fiscal deficit is estimated to shoot up to 6 to 6.5% by the end of this fiscal year2008-09. The government has announced a further borrowing programme of Rs 45,000crore between 1.12.08 and 31.03.09. All these measures are likely to put pressure onthe government’s finances and the government is sure to miss the FRBM targets of2.5% fiscal deficit and 1% revenue deficit by March 2009.
INDIA'S EXPORTS AND GDP GROWTH
India’s exports in October 2008 fell by 12.1% in dollar terms to USD 12.8 billionas compared to October 2007. However, exports grew by 8.2% in rupee terms due tosharp depreciation of rupee against the dollar. India’s forex reserves have dipped by20% in dollar terms to USD 248 billion. FIIs have withdrawn USD 13.5 billion (net)between January and November 2008. India’s GDP grew by 7.6% during second quarterof 2008-09, according to CSO. The economy expanded by 7.9% during the first quarter,taking the first-half GDP growth to 7.8%. During the year 2007-08, the economy grew by9 per cent. Tax collections have been showing signs of weakness of late. On the positiveside, Inflation rate based on Wholesale Price Index (WPI) has come down to 8.40% ascompared to 12.91% reached in the first week of August 2008. Crude oil also has fallenby more than 70 per cent from its peak attained in July 2008 to the present USD 42 abarrel (NYMEX). Other commodities prices have also fallen sharply. The country iswitnessing a healthy capital inflow through ECBs as well as Foreign Direct Investment.