Indian economy to grow by 9 percent in 2010

We expect the economy of India growing by 9 percent in 2010, helped by a rise in domestic demand and higher industrial output, even as high fiscal deficit remained an area of concern. We also expect exports to rise and its industrial growth at around 10 percent by the end 2009.

The predictions on India's growth were altered upward after the official data on gross domestic product showed a 7.9 percent expansion during the second quarter this fiscal, against 7-7.5 percent that was expected earlier.

There were further signs of a recovery when the country's merchandise exports grew 18.2 percent in November after as many as 13 successive months of decline since October last year. Industrial production, too, was up by a robust 10.3 in October.

Previously, the country's growth had slipped to 6.7 percent in the last fiscal from over 9 percent in the three preceding years. In the first quarter of 2009, the growth in the country's gross domestic product was 6.1 percent.

An area of concern which policy-makers must address was the fiscal deficit of 6.8 percent and to bring it down to the desired levels the government needed to look at ways to raise additional finances.

Speed up the divestment process

The government will have to accelerate the divestment process (i.e., power utility NTPC and the National Mineral Development Corp). It is the only way to bring down the fiscal deficit. So far the government has divested its stake in two state-run firms -- Oil India Ltd and another power entity National Hydroelectric Power Corp this year.

This would help bring down the fiscal deficit and also ensure that it meets it target to divest the targeted state-run firms by the end of eleventh five-year plan -- that is by 2012.

INDIA INFLATION: fueled by costly food prices

Driven by a relentless rise in food prices, the annual inflation rate soared to 1.21 percent for the week ending 10 October 2009, a rise of 0.29 percentage points from the level of 0.92 percent in the week before. This was the highest rise in five months.

Prices of sea fish rose by 14 per cent, moong by five per cent, rice by three per cent, and urad, arhar, wheat by one per cent each. However, prices of fruits and vegetables declined by one per cent each. Potato prices swelled 104 per cent in the week ending 10 October from a year earlier, sugar prices rose 45 per cent and pulses 22.8 per cent. Rice prices rose by 12.7 per cent and milk by 10 per cent.

Consumer prices paid by farm workers rose 13.19 per cent in September from a year earlier and those paid by industrial workers climbed 11.72 per cent in August. Food prices are rising on the back of deficient monsoon rains that badly hit farm output.

Easing of the current monetary policy stance?

Experts, including the Prime Minister’s economic advisory panel, expect inflation to reach 6 percent before the year ends. Though the rise in inflation was faster than anticipated, experts do not expect the RBI to disturb bank rates before its scheduled credit policy review on 27 October.

“Overall risks are rising for inflation in India and one should not brush it aside as supply-side inflation. There may be an element of demand-side pressure also in it,” said Ms Ramya Suryanarayanan, an economist at DBS, Singapore. “I think the central bank is going to take note of that in next week’s policy meeting,” she said.
PMCA, while forecasting six per cent inflation by the end of March, said there was no need to change the current easy monetary stance unless inflationary pressures rose. “The stance of monetary policy will have to change from its highly accommodative position,” PMEAC chairman Mr. Rangarajan, said, while releasing the economic outlook report for 2009-10. “But that has to wait and that will depend on the growth performance of the economy and also inflationary pressures.”