Worst over, Indian economy on road to recovery.

Source: www.ibnlive.in.com
REUTERS

India's economy, which has been hit harder than expected by the global recession, may be on
the path to recovery, some recent data suggests that Asia's third-largest economy is expected
to have grown less than 7 percent in 2008/09, sharply lower than the expansion of 9 percent or
in each of the previous three fiscal years, and is poised to expand at the same pace in the fiscal
year ending March 2010.
Some analysts say the robust growth in steel and cement sales as well as in manufacturing in
recent months showed the worst maybe over for the economy. The following looks at the
growth outlook for the South Asian economy and the pace of its economic recovery.
Evidence of recovery
A slew of data in recent weeks has shown that a tentative recovery is taking shape.
The ABN AMRO Bank purchasing managers' index (PMI) based on a survey of 500
companies, rose to 53.3 in April from March's 49.5, climbing above the threshold of 50
that separates expansion from contraction.
Cement sales have grown at near double-digit rates since November; consumer goods
sales have seen strong support from rural markets, while auto demand has firmed after
a disastrous December quarter.
Wholesale price inflation shows demand has not fallen as anticipated and prices were
holding firm. Industrial output, which accounts for nearly a quarter of India's gross
domestic product, has shown signs of revival after a dismal March quarter.
January's initially reported fall was revised to a rise of 0.4 percent. Economists said
stimulus packages announced by the government since late last year, along with
aggressive policy easing by the central bank, look to be making an impact given
improved car sales and uptrend in cement and steel demand.
They also say robust performance of consumer goods and capital goods, a key
barometer of activity, in the February industrial output report showed that there is
demand.
Analyst say savings and investment rates, which have reached close to 40 percent due
to the structural changes in the economy, would enable it to sustain an investment rate
of 35 percent despite lower capital inflows.
The main stock index has rebounded more than half from its 2009 trough in early
March. Foreigners bought .5 billion worth of shares in April and another 6 million on
Monday, after heavy outflows in January and February.
GDP growth outlook
Domestic ratings agency ICRA says 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 and as government stimulus starts
feeding into the broader economy. The central bank has forecast 6 percent expansion in Asia's
third-largest economy but private analysts have pegged growth lower than that. Any growth
below 6 percent would increase unemployment.
Rajeev Malik, economist with Macquarie Securities says the largely domestically driven
economy will begin to recover palpably from mid-year onwards. "The double-cylinder fiscal and
monetary response has been aggressive and already paying dividends."
Investment bank UBS said in a research note that its lead economic indicator had climbed for
three months in a row which signalled a strong likelihood of an upturn in industrial activity by
June.
Robert Prior-Wandesforde, economist at HSBC, wrote in a research report that there were a
number of reasons to be positive about India's growth prospects.
"Individually, none of them are hugely powerful, but collectively they should drive a recovery
later this year which is likely to gain momentum in 2010."
Risk and hope
There is still some data which shows that the global slowdown has taken a heavy toll. Exports
declined by a third in March to .5 billion, its sixth straight monthly fall and economists say the
global economic slump would further dent Indian firms' foreign sales in the months ahead.
Consumer prices still remain elevated and the central bank said inflation based on various
consumer price indices continues to be near double digits, reflecting a firm trend in food prices.
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 central bank's aggressive rate cuts.

Though the road seems long winding now there is a definite upswing which could mean a
breath of relief to many.

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