Signs of Recovery in Indian Economy

28
22

Ashok Handoo

Is the Indian economy showing early signs of revival or a turnaround? It may be too early to say yes, but the figures thrown up in recent days certainly point to that. And that should be good news for the managers of the Indian economy. Despite that there is no room for complacency as the challenges ahead are indeed, enormous.

            Let us first talk of the turnaround indicators. The official data shows that the cement sector has grown 9.97 percent in December 2008 as compared to November and the year on year increase is 11%. Steel, which declined from September onwards last year, has shown a recovery in December last and January this year. It has now touched 22.86 million metric tones, a figure it achieved in May 2008 when the sectoral growth rate was 4.1%. This may not be quite impressive but the very fact that the sector is growing is a matter of some satisfaction. Passenger vehicles grew at 32% in January 2009 compared to December 2008. Commercial vehicles grew at 23%. These are all encouraging signs.

            Job losses are an area of immense concern to all of us. The Labour Minister Shri Oscar Fernades informed Parliament recently that half a million jobs had been lost in India due to the economic slowdown. That certainly is a cause of concern. But there is a silver lining too.  A recent survey conducted by the HR consultancy firm Hewitt says that less than 13% companies in India were considering retrenchment while 60 % are still hiring. India is at the lowest of the ladder of layoffs, with the US topping the list at 55 %. It is followed by China at 30.6%. Japan, Korea, Singapore and Malaysia also are higher up in the ladder.

            On the other hand, the survey shows that India is at the top of the ladder with 8.2% in year on year projected salary hike in Asia- Pacific. Even the US and Japan are expected to have a salary hike of only 3.2 % and 2.3 % this financial year.  The projected salary hike is indeed far less than 13.3 % India witnessed in 2008 but in these hard days the picture is not all that gloomy. Hewitt says the survey was conducted in December and January for 480 Indian companies.

            The Finance Minister, Shri Pranab Mukherjee,  has already urged the Indian Industry not to cut down on jobs and salary cuts could instead be effected to tide over the present turmoil.

            By all accounts therefore, the pro-active fiscal and monetary measures taken by the Government and the Reserve Bank of India seem to be showing results. But there is a long, long way to go.

            Clearly, the key to deal with the present economic crisis is to increase demand domestically, as we have no control on the demand in other countries which are facing a far worse situation than we do. This is precisely why Indian exports have been suffering a big blow as the US, UK the European countries and Japan, which account for more than half of India’s exports, are in the grip of a recession. The downside is that we may have to wait longer than expected in the export sector until these economies revive.

            That also explains why the Government is focusing on stimulating domestic demand by ensuring flow of credit to trade, industry, investment in Infrastructure, Housing and Real Estate. Flagship programmes like NREGS and Bharat Nirman too are being allocated adequate resources. But as Shri Pranab Mukherjee pointed out, this is a global crisis and “Global crisis requires a global response and India is playing its own role in fashioning it.”

            The Government, on its part, has been injecting huge amounts into the system through stimulus packages and duty cuts. The 3rd package announced by the Finance Minister in Parliament  means pumping another 29,000 crore into the system by way of duty cuts in excise and customs as well as service tax. He also announced that the 4% cut in central excise duties made in December 2008, would continue for the next fiscal as well. In the interim Budget also, Shri Mukherjee projected higher spending in the next fiscal year.

            The RBI too has reduced the CRR, the portion of deposits banks are required to keep with the RBI, from 9 percent to 5% during the last 4 months. The Repo Rate, at which RBI lends cash to banks, too has been cut 4 times to 5.5%. The reverse repo rate has also been brought down from 6 to 4 percent.

            The question now is whether these rates can be further reduced to put more liquidity in the system. The RBI Governor D. Subbarao says there certainly is room for rate cuts. It is now considering whether the rates should be cut, when and by how much.

             Fortunately, the situation on the Inflation front is encouraging. The latest figures show that it has dipped to below 4%, 3.92% to be precise, and is heading towards a further fall in the days ahead. It is estimated to touch the low of 2% by the end of current financial year and continue to fall further, thereafter. So, there is no price pressure on the government to work against pumping more money into the system. Despite this one has to take note of Shri Pranab Mukherjee’s words of caution while presenting the interim Budget. “We have weathered the crisis (from inflation) but there is no room for complacency.” The fiscal deficit which was initially estimated to be around 2.5 percent of the GDP is now likely to be in the range of 6% and could thus be a record high in seven years. Higher deficit has also increased government’s borrowing target from Rs. 2.61 trillion to Rs. 3.06 trillion.

            The effect of the global recession on India has been “much sharper” than expected. It therefore calls for more measures to stem the tide of low growth and layoffs. The figures reveled by the Central Statistical Organization say that the Indian economy will grow by 7.1% in the current financial year against 9 percent in the three previous years.  The Deputy Chief of the Planning Commission Shri Montek Singh Ahluwalia believes that it would continue to grow at 7 percent in the next fiscal as well despite the impact of the global financial crisis. Some economists however feel that it may come down to 6 percent.

             On balance, the economic situation does seem to be looking up. Things are better than what it was 2 months ago. As Shri Ahluwalia puts it “banks are now willing to lend to good companies with a strong financial position. What is now needed is to get credit flowing to the lot of companies in the middle.” The risk perception in banks, which is very high at this point of time, must go. That may, however take some time. Boosting of demand and investment continue to remain the mantra to deal with the current economic crisis.

28 COMMENTS

  1. Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Anyway I’ll be subscribing to your feed and I hope you post again soon.

  2. I was very happy to seek out this site.I wished to thanks for this nice learn!! I definitely enjoying each little bit of it and I have you bookmarked to take a look at new stuff you post. Anyway, in my language, there usually are not much good supply like this.

  3. Good afternoon. I wanted to drop you a quick comment to express my thanks. I’ve been following your blog for a month or so and have picked up a ton of beneficial information as well as enjoyed the way you’ve setup your blog. I am attempting to setup my own blog but I think it’s far too general. I want to focus more on narrower topics. Being all things to all people is not all that its cracked up to be. Many thanks.

  4. I was very delighted to locate this site.I needed to say many thanks to you with regard to this great read!!! I absolutely enjoyed each and every tiny bit of it and We’ve you bookmarked to examine out new items you put up.

  5. My English conversation is not so super butI assume I understand every thing. Give thanks to u a lot for that great webpage article. I truly get pleasure from perusing it. I think you are a absolute author. At this moment extra ur internet site to my favorites and can appear again to yor internet site. Maintain up that wonder work. Expect to see much more quickly.

  6. This is a splendid article man. Great Share However I’m having problem with the rss . Don’t know why Fail to subscribe. Is there anybody else having same rss trouble? Anyone who can assist please reply. Thanks in advance

  7. I found that to be more helpful well let me know how it turns out! I love what you guys are always up too. Such clever work and reporting! Keep up the great works guys I’ve added you guys to my blogroll. This is a great article thanks for sharing this informative information.. I will visit your blog regularly for some latest post.Jonus

  8. Hi I found your site by mistake when i was searching yahoo for this acne issue, I must say your site is really helpful I also love the design, its amazing!. I don’t have the time at the moment to fully read your site but I have bookmarked it and also add your RSS feeds. I will be back in a day or two. thanks for a great site.

  9. Hi. this is kind of an “unconventional” question , but have other visitors asked you how get the menu bar to look like you’ve got it? I also have a blog and am really looking to alter around the theme, however am scared to death to mess with it for fear of the search engines punishing me. I am very new to all of this …so i am just not positive exactly how to try to to it all yet. I’ll just keep working on it one day at a time.

  10. This is my second visit to your blog. We are starting a brand new initiative in the same niche as this blog. Your blog provided us with valuable information to work on. You have done a marvellous job.

  11. Amazing post! I initially found your blog a week or so ago, and I subscribed to your RSS feed the very same day. I have several cool ideas for some upcoming posts you could write. I’ll send you an email shortly. Keep up the great work.

  12. I totally agree even though you have told only part of the “story”. Maybe I can contribute some other time to this post. Let me check the rest of this blog. Thanks. Tony Luci

LEAVE A REPLY

Please enter your comment!
Please enter your name here