Indian economy on track for higher growth - Emirates24|7

Indian economy on track for higher growth

(REUTERS)   

 


The Indian economy seems poised to take off on a higher growth path supported by rising foreign exchange reserves, a booming capital market and a rapid rise in foreign direct investment, according to a report by the research and consultancy firm Deloitte Haskins and Sells.

With parliamentary elections lined up next year, India’s Finance Minister P Chidambaram unveiled on February 29 what is being termed a “populist” budget that provided for a loan waiver of Rs500 billion (Dh46bn) to small farmers and Rs100bn debt settlement scheme for other farmers.

The budget has raised education spending by 20 per cent to Rs344bn and health spending by 15 per cent. Defence expenditure continued to squeeze spending elsewhere, with the military’s budget expanding by 10 per cent to Rs1.056 trillion from Rs960bn last year. The budget has earmarked a total planned spending for 2008-2009 at Rs2.4trn and non-planned spending at Rs5.07trn.

While many have praised the budget’s focus on outcomes instead of outlays, several economists and industry leaders have expressed disappointment their hopes for attention to be paid to India’s dilapidated physical infrastructure were not adequately addressed and have criticised the loan waiver as setting a bad precedent.

The proposal for a tax on commodities future transactions has been slammed as it would make the system globally uncompetitive and would make it difficult to use the transactions for risk management.

The Indian economy’s growth has been impressive. It has joined the elite club of 12 countries with $1trn (Dh3.67trn) economy.

FDI inflows have jumped by almost three times to $15.7bn in 2006-2007 as compared to $5.5bn in 2005-2006. India’s National Stock Exchange (NSE) ranks first in the stock futures trade in the world. The number of companies with a market capitalisation of $1bn or more has increased 40 per cent to a total of 209 at the end of November 2007 compared to 148 at end of 2006.


The fiscal deficit in 2008-2009 is being projected at 2.5 per cent of GDP along with a revenue deficit of one per cent of GDP. The government, however, seems confident of GDP growth of 8.8 per cent in 2007-2008.


According to the Deloitte analysis, in the recently released “Budget 2008: Analysis and Commentary”, the GDP growth for 2007-2008 represents a deceleration from the high growth of 9.4 per cent and 9.6 per cent during the past two years. Last year saw growth slowing across most sectors, including manufacturing and agriculture.


The report’s authors expressed concern that with the Indian economy globalising rapidly, it can no longer remain totally immune to the cyclical nature of the world economy, especially the slowing down of the US economy and the upheavals in the global financial markets. The appreciation of the rupee, inflationary pressures caused by rising prices and the large capital inflows in excess of the current account deficit are also worrying. 


International developments continue to have a direct impact on several key sectors of the Indian economy. There has been a robust increase in foreign exchange reserves, moderate levels of current account deficit, changing composition of capital inflows and sustainable external debt with long-term maturity profile.


“All of these collectively indicate a strong, stable and vibrant state of the external sector. The impact of external events on the Indian economy can also be gauged from the impact of such events on the country’s financial markets,” said the Deloitte report.


There has also been a slight decline in production in the manufacturing sector in 2007-2008.


The appreciation of the rupee against the US dollar has affected the production of the textiles industry and the export performance of Indian textiles continue to lag substantially behind China in the post-quota era in terms of rate of growth of exports and share in world textile exports.

Growth rates in the agricultural sector fell sharply during 2007-2008 (at 2.6 per cent) while industry and services maintained their moderate growth momentum.


 
 
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