FM upbeat, says GDP may grow 8% this year
The Economic Times, December 24, 2009, Page 9
Our Bureau NEW DELHI
INDIA’S economy may return to “spectacular” growth trajectory of 9% seen before the slowdown in the next two to three years despite nagging issues such as high food prices, fiscal slippages and low credit offtake, finance minister Pranab Mukherjee said in Delhi on Wednesday.
“The green shoots are firmly taking root,” he said, adding that the economy will grow at close to 8% in the current financial year if economic indicators continued to improve in the next quarter. India’s GDP grew by 6.7% in the last fiscal year, after clocking an average annual growth rate of more than 9% in the preceding three years. Stockmarkets cheered the projection, with the benchmark indices BSE Sensex and NSE’s Nifty gaining 3.2%, the highest single day gain in more than seven weeks.
“We expect the positive trend in the markets to continue on the back of better IIP and GDP growth numbers…. Significantly higher growth prospects in India compared to other developed and emerging economies will continue to attract FII inflows in 2010,” said K Ramnathan of ING Investment Management. Mr Mukherjee acknowledged that his growth projections were “a bit too optimistic”, but with good reason. “The high growth in second quarter and gaining momentum in the industrial output encouraged me to upgrade the growth projections,” he said.
Industrial production has been gathering momentum in recent months, giving further strength to economic activity. The growth in factory output as measured by the index of industrial production rose to 10.3% in October, picking up steam in successive months. With global trade beginning to pick up, the country’s exports grew 18.2% in November after contracting for 13 straight months. But economists and policy makers point out that the strength of global recovery can be assessed only after couple of months as the high annual growth in November was on a very low base.
Independent economists say the demand side of the economy is already robust, but note the government needs to address the supply-side issues. “The economy can achieve a sustainable 9% growth rate only if the supply side problems in infrastructure segment are taken care of,” said Indranil Pan, chief economist at Kotak Mahindra Bank. Analysts say improving economic growth prospects will help the government tackle challanges like mounting fiscal deficit — at a 16-year high of 6.8% of GDP for this year — and low credit offtake and rising inflation.
“We expect food price inflation to moderate slightly over the next four months, but it will still remain at 15% year-on-year in March,” Morgan Stanley economist Chetan Ahya said in a research note. According to the note released on Wednesday, the government will not go in for an aggressive monetary tightening despite rising food prices. With growth gaining momentum, the bond market expects the government borrowing to come down. With higher than expected direct tax collection offsetting the short fall in indirect tax collection, the debt markets do not see any need for additional borrowing, say bond market dealers.
“With the government hinting at a rollback of fiscal stimulus in the coming budget and the disinvestment proceeds coming in, the borrowings will be under check next year,” said Srinivasa Raghavan, head of treasury at IDBI Gilts.
The Economic Times, December 24, 2009, Page 9
Our Bureau NEW DELHI
INDIA’S economy may return to “spectacular” growth trajectory of 9% seen before the slowdown in the next two to three years despite nagging issues such as high food prices, fiscal slippages and low credit offtake, finance minister Pranab Mukherjee said in Delhi on Wednesday.
“The green shoots are firmly taking root,” he said, adding that the economy will grow at close to 8% in the current financial year if economic indicators continued to improve in the next quarter. India’s GDP grew by 6.7% in the last fiscal year, after clocking an average annual growth rate of more than 9% in the preceding three years. Stockmarkets cheered the projection, with the benchmark indices BSE Sensex and NSE’s Nifty gaining 3.2%, the highest single day gain in more than seven weeks.
“We expect the positive trend in the markets to continue on the back of better IIP and GDP growth numbers…. Significantly higher growth prospects in India compared to other developed and emerging economies will continue to attract FII inflows in 2010,” said K Ramnathan of ING Investment Management. Mr Mukherjee acknowledged that his growth projections were “a bit too optimistic”, but with good reason. “The high growth in second quarter and gaining momentum in the industrial output encouraged me to upgrade the growth projections,” he said.
Industrial production has been gathering momentum in recent months, giving further strength to economic activity. The growth in factory output as measured by the index of industrial production rose to 10.3% in October, picking up steam in successive months. With global trade beginning to pick up, the country’s exports grew 18.2% in November after contracting for 13 straight months. But economists and policy makers point out that the strength of global recovery can be assessed only after couple of months as the high annual growth in November was on a very low base.
Independent economists say the demand side of the economy is already robust, but note the government needs to address the supply-side issues. “The economy can achieve a sustainable 9% growth rate only if the supply side problems in infrastructure segment are taken care of,” said Indranil Pan, chief economist at Kotak Mahindra Bank. Analysts say improving economic growth prospects will help the government tackle challanges like mounting fiscal deficit — at a 16-year high of 6.8% of GDP for this year — and low credit offtake and rising inflation.
“We expect food price inflation to moderate slightly over the next four months, but it will still remain at 15% year-on-year in March,” Morgan Stanley economist Chetan Ahya said in a research note. According to the note released on Wednesday, the government will not go in for an aggressive monetary tightening despite rising food prices. With growth gaining momentum, the bond market expects the government borrowing to come down. With higher than expected direct tax collection offsetting the short fall in indirect tax collection, the debt markets do not see any need for additional borrowing, say bond market dealers.
“With the government hinting at a rollback of fiscal stimulus in the coming budget and the disinvestment proceeds coming in, the borrowings will be under check next year,” said Srinivasa Raghavan, head of treasury at IDBI Gilts.
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