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Slowing GDP, road accidents & more... - Views on News from Equitymaster
 
 
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  • Sep 1, 2008

    Slowing GDP, road accidents & more...

    The hurricane threat...
    Oil prices inched upwards on Friday as producers evacuated rigs ahead of the arrival of hurricane Gustav, which is touted to be the worst Gulf of Mexico hurricane after Katrina. Increased tensions between Russia and the West further contributed to the prices nudging higher. The Gulf of Mexico is home to 26% of U.S. oil output and 14% of the country's gas production. The intensity of the hurricane is expected to determine the course of movement of the oil prices this week. While oil prices were up 2% last week, they are sill 21% lower than the high of US$ 147 a barrel reached on July 11.

    India's GDP slows...
    ...for the quarter ended June 2008, that is. After blazing its way through in the past couple of years with 9% plus growth, growth in the last three months has slowed down to 7.9% as reported by Bloomberg and published by the Central Statistical Organisation. This is hardly surprising. Given that inflation had soared to 13% against a backdrop of rising crude and food prices, the RBI was compelled to raise interest rates. As a result, demand for interest sensitive products such as automobiles and houses slowed down. While construction slowed down to 11.4% in the quarter (12.6% in the corresponding period last year), passenger car sales were flat especially in July. More importantly, monsoons were not upto the mark and the June to September monsoons, which accounts for four-fifths of the country's annual rainfall missed the target by 39%!

    That said, despite the slight slowdown, economic growth is still almost double the average pace since India's independence in 1947. As per World Bank forecasts, China and Russia are slated to outpace India in economic growth this year. While China is expected to grow by 9.4%, Russia is expected to grow just a tad bit higher than India at 8.1%. The Bank expects India to post a growth of 8% this year. The central bank of India, Reserve Bank of India (RBI) has very clearly indicated its priority of keeping inflation under check and is likely to go in for more interest rate hikes this year, if inflation does not cool down.

    Road accidents on the rise
    While poor infrastructure has created huge stumbling blocks on India's path to a much higher economic growth, India also has the dubious distinction of having one of the worst road tolls in the world with 0.1 m people killed in traffic accidents last year. Fathom this. The World Bank estimates that every year road accidents cost India about 3% of its GDP, which was more than US$ 1 trillion in 2007. These are huge numbers indeed! So much so that the World Bank has further forecasted that by 2010, road accidents could become one of the biggest public health issues in India overtaking diseases such as tuberculosis (TB) and AIDS.

    While nothing substantial has been done in terms of improving the quality of roads, cars on the roads have meanwhile piled on in the wake of India's scorching pace of GDP growth and enhancement in lifestyles of the middle class. The International Herald Tribune states, "Pot-holed roads, inadequate safety regulations, a lenient license system and a lax attitude toward drunk and underage driving are all blamed for accidents that kill an estimated 275 people every day. But the biggest killer is arguably the growing numbers of vehicles using Indian roads that are incapable of supporting the massive volume of traffic, steered by drivers who lack basic skills".

    The scenario going ahead is only likely to get bleaker if some drastic steps are not undertaken to address this issue. The Indian Transport Ministry has cited that the annual number of deaths from road accidents is likely to mount to 150,000 by 2015 attributing the same to rapid growth in ownership of automobiles, which in turn are expected to double to 2 m units by 2010 (passenger cars). While the government has outlined a gargantuan investment of US$ 500 bn for the next five years to upgrade and build infrastructure, given the high level of corruption, inefficiency and red tapism, it remains to be seen whether these ambitious targets will indeed be met.

     

     

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