The Indian Economy set to Rise

At Recessionary times ,when even the Economies of developed nations struggled to survive,Indian Economy,despite being a developing country,managed to sustain the inflation.Almost none of the Indian Companies were severly affected.The Regulations & Policies deployed by the Government combine with stimulus packages aideie the Economy to Fight the Recession.Compared to other Economies,only few jobs were lost,which were quickly recruited back.     According the latest financial market news, India has seen a steep growth in the recent time defying all the turbulence caused by the economic slowdown. Touching the mark of US$ 1.04 trillion, India’s market capitalization has gained the whopping ninth position in the entire world.

The overall magic has occurred due to the optimistic government reforms and continuity in policies which have given the Indian stock market a great boost. With this, the Indian economy is all set to witness a turn-around within then next six to nine months and as the breaking news indicate the financial world is abuzz with the latest in the Indian capital market reforms. This indicates that Indian companies shall see a huge rise in money nurtured from the IPOs in the fiscal year 2010. Moreover, as the economic experts indicate that the bulk liquidity that has flooded into the economic system is central banks driven and this same liquidity finds its way into the stock markets too.

Despite slowing from highs of 8% to 9% growth, India’s economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two-thirds) and income (one-half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets

India’s economy has been one of the stars of global economics in recent years, growing 9.2% in 2007 and 9.6% in 2006. Growth had been supported by markets reforms, huge inflows of FDI, rising foreign exchange reserves, both an IT and real estate boom, and a flourishing capital market.

The Centre s stimulus package, the first installment of which was announced at the end of last year to kick start the economy, has seen the desired results with the country being resilient to the overall global economic slowdown. Sectors like automobile, which were witnessing sluggish sales, have started looking up with eight consecutive months of higher sales leading the industry body, Society of Indian Automobile Manufacturers (Siam) announcing double digit growth in the current fiscal. In fact, the country may beat its own record of the highest sales set in 2006-07. Things are looking up in sectors like steel, cement and consumer durables. FE spoke to a cross section of India Inc leaders to assess whether it s time for the government to withdraw the stimulus package. The overwhelming response was that though the signals were bright, the government should carry on for some more time with the stimulus. The consensus was the RBI should carry on with the soft interest rate regime. Akhil Gupta, deputy group CEO and MD, Bharti Enterprises: Unlike most developed economies, India did not have to resort to any major fiscal stimuli. The Indian economy did not face the distress the other economies did and, expectedly, has been among the first to recover. Considering the relatively low level of fiscal stimulus, it would be prudent to let this continue for some time so that all uncertainties about our economic health are completely removed; and after that it should be withdrawn gradually . Swati Piramal, director, Piramal Healthcare: The stimulus has really worked well as reflected in double digit growth in industrial production. These measures should be continued for another one and two years . Ravi Sud, CFO, Hero Honda Motors: The government s stimulus package was timely, and certainly helped industry to grow. However, with so much liquidity in the system, there is likely to be pressure on inflation. If interest rates go up, it would also put pressure on growth. Fiscal deficit also remains a concern, and the government has to address it sooner than later . Pawan Goenka, president (automotive sector), Mahindra and Mahindra said, We believe that the stimulus package should continue. Any disturbance in the current positive momentum could easily reverse the current positive trend . Rajiv Dube, president (passenger cars), Tata Motors (TATAMOTORS.BO : 618.9 -2.65): Call of the industry is for the stimulus packages to continue. The world is not off the recession yet and if you see many of the countries that had floated stimulus packages are continuing with them. Indian authorities have been prompt with their support to the industry and have set an example in front of the world . RC Bhargava, chairman, Maruti Suzuki India: Numbers are going up in relation to last year when sales were very low. Since the growth that we ve seen is a two-year growth, the government support in the form of stimulus should not be withdrawn at this time as it will badly impact the customer sentiment and ability to purchase. Moreover, as uncertainty over interest rate and commodity prices continues to prevail, the government should continue the stimulus package. HS Lheem, managing director, Hyundai Motor India: Stimulus package by the government in the past has been helpful for the automobile industry. But with the scrappage incentive coming to an end in most EU countries, Centre s support in the form of stimulus package is needed to keep export on the growth path .

In wake of the present economic slowdown and the stimulus package announced by the Government, CII conducted a snap poll to analyse the impact of various initiatives, announced as part of the first & second  stimulus packages on the Micro, Small & Medium Enterprises (MSMEs).

The findings of the snap poll revealed that as part of the First stimulus package, the Reduction in CENVAT by 4%, followed by Interest rate cut of 0.5% for small and 1% for micro enterprises by PSU banks, Export support by interest subvention of 2 %, Reduction in lock in period under Credit Guarantee scheme  from 24 to 18 months and Additional Plan Expenditure of Rs 20,000 crores, will  have a beneficial impact for the MSMEs.

The structural transformation that has been adopted by the national government in recent times has reduced growth constraints and contributed greatly to the overall growth and prosperity of the country. However there are still major issues around federal vs state bureaucracy, corruption and tariffs that require addressing. India’s public debt is 58% of GDP according to the CIA World Fact book, and this represents another challenge.

During this period of stable growth, the performance of the Indian service sector has been particularly significant. The growth rate of the service sector was 11.18% in 2007 and now contributes 53% of GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture is 17% ofthe Indian economy.

Growth in the manufacturing sector has also complemented the country’s excellent growth momentum. The growth rate of the manufacturing sector rose steadily from 8.98% in 2005, to 12% in 2006. The storage and communication sector also registered a significant growth rate of 16.64% in the same year.

Additional factors that have contributed to this robust environment are sustained in investment and high savings rates. As far as the percentage of gross capital formation in GDP is concerned, there has been a significant rise from 22.8% in the fiscal year 2001, to 35.9% in the fiscal year 2006. Further, the gross rate of savings as a proportion to GDP registered solid growth from 23.5% to 34.8% for the same period.

The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem,” an official statement said.

The steps taken by the Reserve Bank of India to pump in sufficient liquidity in the financial system are being “supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level.”

As part of steps to create demand in the economy that is expected to grow by over 7 per cent, “the total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs 300,000 crore (Rs 3,000 billion).”

Having assured stability of the financial system, the government said it has focussed its attention on countering the impact of the global recession on India’s economic growth.

“The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year,” it added.

The measures also included the government departments being allowed to seek replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.

“The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity,” it added.