X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economic Survey: Walking the tightrope - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 2, 2009

    Economic Survey: Walking the tightrope

    The Economic survey, highlighting the progress made by the domestic economy in FY09 and some of the challenges facing it, was tabled in the parliament today by India's Finance Minister. Let us have a look at the key takeaways from the same.

    GDP down but by no means out
    Braving one of the worst recessions in recent times, the Indian economy managed to log in a respectable GDP growth of 6.7% during FY08-09. Although this was lower than the average growth rate of 8.8% achieved for the previous five years (FY04-FY08), it was nevertheless higher than the 5.5% growth achieved during the preceding five year period from FY99 to FY03. At 4.6%, the growth in per capita income was also lower than the previous five year average growth of 7.3% but higher than the 3.3% average growth logged during the five years from FY99 to FY03. Important to add that during the first half of FY09, India's growth stood at 7.8% whereas it declined to 5.8% during the second half, when the economic crisis was at its peak.

    The manufacturing sector had its worst performance in recent years with growth slowing down to a mere 2.4% in FY09. Both fall in exports as well as decline in domestic demand contributed towards the poor performance of the sector. Infact, it would be fair to say that all the sectors, except mining and quarrying and community social and personal services, witnessed a deceleration in growth during FY09.

    As far as aggregate demand is concerned, private consumption fell during FY09, accounting for 55.5% of the total GDP growth as opposed to 57.2% in the year before. Fortunately, this fall was compensated by increased government spending as it unleashed a wave of stimulus measures.

    Inflation: A volatile ride
    After remaining at a benign 4.7% during FY08, a sudden spurt in international commodity prices saw inflation raising its head again. However, appreciation of the rupee against the dollar during the last quarter of FY08 managed to provide some cushion. But once this cushion subsided and commodities continued with their upward march, the headline WPI inflation rate touched double digit levels by the middle of June 2008. It remained there for the next 21 weeks, touching a high of 12.9% in early August 2008. As per the survey, nearly two thirds of this rise in inflation was due to three sets of commodities namely, edible oils, iron and steel and mineral oils and refinery products.

    The Survey is cognizant of the fact that there is a need to provide ample liquidity in the system so that economic growth is not hampered. However, it is also aware of the potential negative consequences of the same in the form of a potential inflationary threat once the economy is back on its feet. Hence, rolling the excess liquidity back in in orderly manner is going to be the next big challenge for policymakers.

    Savings & investments: The game changers for India
    Among the most salient features of India's record high growth rates from FY04 to FY08 have been the country's savings rate and investment rates. While investment rate increased from 25.2% in FY03 to 39% in FY08 as a percentage of GDP, gross domestic savings as a percentage of GDP increased from 26.3% in FY03 to 37.7% in FY08. This in turn reduced India's dependence on external capital and made it extremely resilient. Although capital inflows also remained strong, they were used mainly to accumulate foreign assets as the domestic investment needs were mostly met through internal savings.

    Summing upů
    While factors like strong rural income and consumption, high domestic savings rate, government focus on infrastructure and a reputation of being one of the most favored destinations for FDI are likely to emerge as key strengths for the economy, the country will have to also watch out for some adverse factors like drop in private consumption, reduced availability of risk capital and poor export demand. To conclude, it will be the interplay between the country's strengths and weaknesses that will determine how quickly the country will revert to the trendline growth that it achieved between from FY04 to FY08.

     

     

    Equitymaster requests your view! Post a comment on "Economic Survey: Walking the tightrope". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS