Indian Economy Update - Is Indian Elephant Slowing Down ?

Today's post is inspired by the Breaking news from the Indian Economy " GDP Grows by 7.9% during Q1 FY'09". Read on .....lots of info ahead !! Happy Weekend !!!!

India's economy probably grew at the slowest pace since 2005 last quarter as the fastest inflation in a decade and higher borrowing costs damped consumer spending.
India, Asia’s third-largest economy, expanded at 7.90% percent during the quarter ended June 30 from a year earlier, vis-à-vis an 8.8 percent gain in the previous quarter ended March 31st 2008.

Higher fuel and food prices have pushed inflation to 12.4 percent and forced the Reserve Bank of India to raise interest rates three times since June. The central bank still expects the economy to expand around 8 percent this year, almost double the average pace since India's independence in 1947. However India's growth is still pretty good the future will not be that Bright as it was in the last few years because of the aggressive monetary tightening.

India may lose its position as the world's fastest-growing major economy after China this year, according to World Bank estimates. Russia's economy may grow 7.1 percent in 2008, overtaking India's 7 percent expansion this year, while China may increase 9.4 percent this year, the bank forecast in June. However, the standings do not matter much except for the expected FII inflows that might be taken aback by the declining growth rates of the economy. The mitigant is that the valuations of most of the companies have come down from the high premiums commanded during the calendar year 2007. Thus, the theme of value investing might and will attract the FIIs in the next few quarters assuming positive political climate in the country.

As of date High inflation and interest rates are issues that are bothering the Indian industry as they have an impact on consumer demand and hurt corporate profitability.

On the political front, Inflation can win or lose elections in India, where about 456 million people live below the World Bank's poverty line of $1.25 a day. Mr. Manmohan Singh lost ground in nine of 11 state elections since January 2007 because of rising prices. General elections are scheduled to be held before May. To fight the back lash against spiraling inflation Mr. Singh wrote off $17 billion of farm loans during February, 2008 and during this month increased salaries of about 5 million government employees by 21 percent to spur consumer demand and there by win the hearts of the Indian middle class….AAM AADMI !!!!!

Industry, which makes up a quarter of gross domestic product, is also getting support from investments in India's special economic zones, which are enclaves with uninterrupted power, water and other infrastructure support for manufacturers. It is expected that investments may reach 2 trillion rupees ($45 billion) in about 250 zones by December 2009, the commerce ministry estimates.

India's passenger car sales were almost stagnant in July. Maruti Suzuki India Ltd., maker of half the cars in the country, posted a heart breaking 1.5 percent gain in sales while Hyundai Motor Co.'s India unit, the nation's second-largest car maker, boosted sales by 0.5 percent!!!
ACC Ltd., India's biggest cement-maker, reported a worse- than-estimated 27 percent drop in second-quarter profit on fuel costs and government-enforced price curbs to check inflation. Sales rose by 1.2 percent as construction slowed.

India's benchmark Sensitive index has declined by a third this year, while the yield on the key 10-year bond has climbed about 60 basis points to 8.80 percent. The rupee has weakened 8.3 percent against the U.S. dollar since Jan. 1.

Services, which account for 55 percent of the economy, may have also been dented in the second quarter because of higher interest rates. Banking services, for example, will probably take a hit after loan growth at Indian banks slowed to about 23.5 percent in the first six months of this year, compared with 27.8 percent a year earlier, according to the central bank.

The June-September monsoon, which accounts for a whooping four-fifths of the nation's annual rainfall, was 1 percent below average in the week ended Aug. 24, according to the weather office. A normal monsoon will help the country's 234 million farmers harvest a bigger crop, boosting incomes. Agriculture makes up about 20 percent of India's economy, though it provides a livelihood to three-fifths of India's 1.1 billion people who dwell in rural areas.

Amen.....

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