The Indian economy will grow by as much as 8.75% in the coming fiscal year, the country's finance ministry predicted on Thursday. But concerns about inflation and a growing deficit have some analysts worried.
The annual Economic Survey released in parliament yesterday (Thursday), one of New Delhi's most important policy documents, said Asia's third largest economy will return to a high rate of growth as it stages a "remarkable recovery" from the global recession. Economic growth this year is estimated at about 7.5%.
The comprehensive annual assessment of India's economic performance was released a day before the government is scheduled to reveal its national budget, which is widely expected to outline policy changes to wind down fiscal stimulus measures and reduce the country's worst deficit in 20 years.
India has shaken off the "despondency and gloom" that had haunted the economy a year ago as the global financial crisis stifled growth in large emerging markets, said Finance Minister Pranab Mukherjee. Growth fell to 5.8% in the last quarter of the 2008-09 fiscal year, after peaking at close to 9%.
"We began the current fiscal year with a sense of uncertainty; we end it with confidence," he said as the Economic Survey was presented in parliament.
The economic report painted an even rosier outlook for the future, projecting that economic growth could be as high as 10% in four years, making India the fastest growing economy in the world.
But the survey also highlights the specter of high inflation. Prices for staples like sugar, lentils and rice have been soaring recently, after weak monsoon rains last year fostered a drought, hampering farm output. The report warns that food inflation, which is presently hovering around 18%, could persist for a year and spawn inflation in other sectors of the economy.
Sushma Swaraj, the leader of the opposition in the lower house of parliament, said yesterday that high economic growth means little to millions of poor people in the country for whom basic food items are becoming unaffordable, Voice of America News reported.
The Economic Survey also recommended that the government take steps to rein in public spending, referring to a report by a government panel's recommendation to cap total federal and state debt at 68% of gross domestic product (GDP) by 2014-15. Combined federal and state debt now hovers around 80%.
The country appears headed for the economic equivalent of a one-two punch — a simultaneous monetary crisis and fiscal crisis, according to Money Morning Contributing Editor Martin Hutchinson.
"Inflation will get uncomfortably high while the government struggles to fund its budget deficit and "crowds out" small- and medium-sized business borrowing while doing so," Hutchinson wrote in a recent article.
While reining in spending could solve both problems, Hutchinson sees that as unlikely because the governing Congress Party has a history of heavy public spending. Either way, he says, there is likely to be a period of considerable retrenchment among India's business and consumers.
Additionally, India's emergence from the financial crisis has pushed Sensex stock prices sharply higher.
"At some point India is likely to run into crisis," said Hutchinson. "That's when you should buy the market, because the long-term-growth prognosis is unquestionably positive."
News & Related Story Links:
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India forecasts 8.8% economic growth - Voice of America News:
India Estimates 2010 Economic Growth - Money Morning:
Despite India's Optimism, There May Be a Better Time to Buy
Bigger problem than Greece?
Predicted Economy growth of 8.75% by Indian team is simply fictitious and manipulated to project a rosy picture. When the average price index of essential commodities has already gone upto as much as 30%, it is but natural that the GDP rate will also increase. When inflation rate is taken into account, the real growth will be much less than earlier figures. To manipulate the growth rate, changes are often made on the price index numbers frequently , due to no valid reason. I agree with Hutchinson who states that at some point India is likely to run into crisis,". Without tangible increase in productivity, there cannot be any increase in real GDP. If the economy is stable as claimed by the ministry, what is the need for hiking the price of commodities by levying excess taxes.This action shows the Indian economy is in dole drums. Time is not far off, when India's economy will have unprecedented troubles, due to hike in fuel price alone. When the Govt is not setting right priorities and the quack finance ministers are in decision making level, there can't be anything better.Current economic scenario of India is just a mirrage and the results will soon follow.
9% growth with huge deficit and debt will not work. Won't be surprised, if India is in situation like Greece, in 3 or 4 years.
nice updates
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[…] Investing in India Regardless of the ongoing battles against inflation and debt, India is one of the most dynamic economies in the world. If the global recovery stalls, it will suffer a less severe impact than most developed countries, and it will outperform if the recovery continues. If you're looking to capitalize on India's infrastructure build-out, you might look at Sterlite Industries (NYSE ADR: SLT), which is a non-ferrous metals and mining company. Its aluminum and copper operations have the company positioned to take advantage of any rise in metals prices, as well as rising energy demand in India. Tata Motors Ltd. (NYSE ADR: TTM), the country's largest truck-maker and creator of the $1,000 Nano, could also benefit from India's infrastructure expansion. More adventurous traders seeking to profit from India's currency fluctuations might consider the Morgan Stanley Market Vectors Indian Rupee/USD ETN (NYSE: INR). This fund offers exposure to India's currency by tracking the exchange rate of the U.S. dollar against the Indian rupee. INR rose gradually throughout the spring before plunging in May. It could slide further in the short-term if policymakers continue to abstain from interest rate hikes and inflation soars. But in the long-term, the rupee and the index will likely realize gains as the RBI caves to inflationary pressures. At the very least, consider the WisdomTree India Earnings Fund (NYSE: EPI) and the iShares S&P India Nifty Fifty Index Fund (Nasdaq: INDY). The former tracks the WisdomTree India Earnings Index, a fundamentally weighted index that measures the performance of companies incorporated in India that are eligible to be purchased by foreign investors. Unlike most equity ETFs, EPI doesn't track a market cap-weighted index, instead replicating the performance of a benchmark that weights holdings by earnings. Its main focus is on industrial materials (32%) and financials (23%). INDY follows the S&P CNX Nifty Index, a benchmark that measures the performance of 50 large cap Indian stocks. It also is weighted towards industrial materials and financials, but unlike EPI, INDY does not venture away from large cap holdings. News & Related Story Links: Money Morning: India Says Economy Will Grow by 8.75% This Year, but Obstacles Remain […]