Tuesday, February 10, 2009

To Dr. Jalal Alamgir

Thanks for joining our blog. Your concerns are indeed well placed. Year 2009 or at least the first half of fiscal 2009-10 is going to be a difficult phase for the Indian economy. To emphasize the problems recent data on the domestic manufacturing sector which is the second largest employment generator after agriculture shows that —of the 96 manufacturing segments covered under the CII-Ascon survey, 32 recorded a negative growth.
The worst hit segments include fertiliser, polymers, steel, pig iron, motor starters, castings, textile machinery, distribution transformer, HCV's, LCVs, rubber footwear and auto cycle tubes. These numbers could indeed worsen in the next 2/3 quarters.
However, as you know, the government and the central bank have acted several times and are continuously monitoring the situation. The consequent high fiscal deficit should not hamper the flow of foreign investments, according to the Deputy Chairman of the Planning Commission, as high fiscal deficit due to the current economic downturn is a global phenomenon and not particular to India. The positives are: despite slowing down in the recent months as rightly pointed out by you, FDI has increased 75% in the current calendar year and 90% in the current fiscal year (over the same period, till November 2008); for 2008-09 the Indian economy will possibly turn in the second-fastest growth rate in the world at 7.1%, after China’s 8%, keeping India as an attractive destination for new FII and FDI flows; the February 16 interim budget is expected to contain more spending plans to support the economy for the first four months of the next fiscal; interest rates may be reduced further keeping alive the FII flows to the Indian debt market, which has indeed played an important role during the equity market meltdown; PSBs have reduced their lending rates to encourage industry and particularly the real estate sector. So as and when the global or even US downturn shows signs of bottoming out, India should recover and recover faster than many other economies. The political environment is not likely to cause divergence from the growth orientation of India’s economic policies.
For detailed FDI data see

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