Economy has moved decisively to higher growth (The Hindu Business Line 29th Feb 2008)Optimism on growth laced with caution on the inflation and external sector fronts. This, in essence, is the outlook conveyed in the Economic Survey tabled in Parliament ahead of the Finance Minister, Mr P. Chidambaram, presenting his Union Budget for 2008-09 on Friday.
“The economy has moved decisively to a higher growth phase,” the Finance Ministry’s annual report card on the Indian economy has declared.
With the country’s gross domestic product (at constant market prices) growing at eight per cent plus for an unprecedented five years in a row — 8.4 per cent in 2003-04, 8.3 per cent in 2004-05, 9.2 per cent in 2005-06, 9.7 per cent in 2006-07 and a projected 8.7 per cent this fiscal — the average per capita income of its people has risen by 7.2 per cent per annum during this period.
This is against 3.1 per cent over the 12 years from 1980-81 to 1991-02 and 3.7 per cent during the subsequent 11 years to 2002-03.
The sharp acceleration witnessed since would mean that “average income would now double in a decade, well within one generation, instead of after a generation (two decades).”
The Survey has noted that if growth is maintained at the targeted nine per cent for the Eleventh Five-Year Plan period (2007-08 to 2011-12) and stepped up to 9.5 per cent in the succeeding year, it would make India in a select league of medium/large countries that have averaged a GDP growth or more for a decade.
These include the likes of Japan, China, Taiwan, Hong Kong, South Korea, Singapore, Portugal and Greece. But achieving this, it admits, “will be a challenge,” requiring additional economic policy reform measures. More
Outlook for 2008-09: Optimism, but with caution as the watchword, says Chidambaram(The Hindu Business Line 29th Feb 2008)In a clear pointer that the 2008-09 Union Budget would be growth-oriented, the Finance Minister, Mr P. Chidambaram, on Thursday asserted that the Government would continue to provide a conducive investment climate and manage the macro-economy to facilitate non-inflationary growth so that “our growth story is not affected.” Favouring India
“If you wish me to sum up in one phrase the outlook for 2008-09, I would say ‘optimism, but with caution as the watchword’. There are a number of things going in favour of India. We need to capitalise on these opportunities while at the same time responding to the evolving situation in the global economy in a manner that our growth story is not affected,” Mr Chidambaram told reporters after placing the Economic Survey 2007-08 in the Lok Sabha today. Inflation
Mr Chidambaram said that he was optimistic about growth and containment of inflation in the coming year, even while admitting that there were downside risks to growth arising from the slowdown and possible recession in the global economy.
“Given the high level of food, oil and other commodity prices in international markets, the risks to inflation remain. Thus, keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09,” Mr Chidambaram said.
The Finance Minister said that the economy has decisively moved to a higher growth trajectory during the five years to 2007-08. The Economic Survey tabled in the Lok Sabha today projected economic growth of 8.7 per cent for 2007-08. The survey also says that overall inflation is projected to decline from 5.6 per cent in 2006-07 to 4.1 per cent in 2007-08.
“The higher economic growth trajectory and the projected growth of 8.7 per cent in 2007-08 is based on a quantum jump in savings and investment rates. Given the solid foundation of domestic investment and saving, we are confident of meeting the Eleventh Plan (2007-08 to 2011-12) target of 9 per cent average growth,” he said. More
Survey buys decoupling theory(Live mint.com 29th Feb 2008)At a time when market experts are busy rubbishing the “decoupling” argument, the finance ministry seems to have bought it lock, stock and barrel. Not content with making the usual anodyne positive-in-the-long-run statements, the Economic Survey disregards the current volatility in the stock markets and sticks its neck out in making short-term predictions. This is what the survey had to say: “In the short term, expectation of higher relative returns from investment in India, favourable risk perception of investors and improved global liquidity would help the country in being an attractive destination for investment. Going forward, despite the possible subdued global growth, the strong fundamentals of the Indian economy in tandem with higher growth would help in sustaining the interest of domestic and foreign investors in the Indian market.”
In short, it’s the old India as a safe haven argument and while it may be stretching a point to say the finance ministry is bullish on the Indian markets, the clear implication is that we should do better than the other markets, even in the short run. The survey adds that resources with Indian financial institutions will also find their way into the market, while funds from insurance companies will also provide support. While it’s true that large amounts of money did find their way to India last September and October after the US Federal Reserve’s rate cuts, India has also been one of the worst performers in 2008.
The fact that India’s market capitalization as a percentage of gross domestic product (GDP) was the highest among the countries listed by it doesn’t seem to have shaken the finance ministry’s faith. According to the survey, India’s market cap as a percentage of its GDP was 150% as on 31 December, compared with 128.8% for the US and 137.3% for China. The Sensex is off around 13% from that date, but other markets too have corrected.
What about the ”fundamentals”? The survey says that corporate earnings remain “encouraging”. Also, while it does talk of a slowdown in industrial growth, it points out that “the slowdown, shown by the available data on consumer durables, may not in itself be a cause of serious concern in the long run, provided the overall buoyancy in growth and income is maintained.” More
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