Economy: Hanging on many strings - Views on News from Equitymaster

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Economy: Hanging on many strings

Jul 3, 2009

Govt. expects a 6.25% to 7.75% growth
At a time when the global economy has been hit by one of the worst recessions ever, the Indian economy managed to log in a respectable GDP growth of 6.7% during FY09. While this was lower than the average growth rate of 8.8% achieved during its high growth phase (FY04-FY08), the performance was still much better than the 5.5% growth achieved during the period from FY99 to FY03.

Source: Economic survey; E - Government estimate

In its Economic Survey for 2008-09, the government has stated that it expects the economy to grow by 6.25% to 7.75% during the current fiscal (FY10). However, it also believes that a lot will depend on the recovery and health of the global economy (especially the US) in the coming few months. "If the U.S. economy bottoms out by September, there could be a good possibility for the Indian economy repeating last financial year's performance," the survey says. It may be noted that expectations of the growth rate have been made on the basis that the country will have a normal monsoon, a clear picture of which will emerge only by the end of July.

A lot will also depend on how the government pushes second-generation reforms related to energy pricing, managing the fiscal deficit, tax structures, the public distribution system and education.

Inflation lower by 1.3%
Inflation as measured by the wholesale price index (WPI) fell 1.3% during the week ending June 20. It was lower by 1.14% in the week before. It may be noted that wholesale prices in India fell for the third successive week. However, prices of primary and manufacturing goods remained firm. The RBI governor Dr. D. Subbarao is of the belief that India is not in the grip of deflation as food price inflation still remain in double digits.

We believe that the inflation figure is unlikely to remain in the negative territory for long as fuel prices have been hiked recently which will percolate to food prices.

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