Will it be ‘W’ ?

A year has gone by since the collapse of US investment bank Lehman Brothers sent major shock waves across financial markets and eventually dragged the global economy into a severe synchronised recession. Signs that the global economic recovery is strengthening continue to emerge over the past few weeks, as increasingly more key indicators, such as business sentiment, trade, manufacturing and industrial production indices, are turning positive and more or less maintaining their uptrend from the trough, helped by enormous spending by governments over the globe. While there are risks associated with a prolonged expansionary monetary and fiscal stance – such as rising government debts, inflation, and the encouragement of new bubbles to develop in the stock and real estate markets – the consensus view is that unwinding the stimulus measures too soon could derail the global recovery process. This is particularly so as, amidst the recent optimism, warning bells are being sounded on the shape of the global economic recovery giving rise to concerns about a W-shaped recovery or a double-dip- recession. (A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession, when (GDP) growth slides back to negative after a quarter or two of positive growth.

India’s Recovery Wobbles?

RBI has warned that the Indian economy is unlikely to revert to its trend growth rate soon, as recession in advanced economies would eat into global growth and world trade. A drought like situation through most of the monsoon season has also led to concerns on the agricultural economy. Consumer spending on the other hand has been very positive, as indicated by the double digit growth of consumer durables in the IIP numbers for July. Easier availability of credit coupled with higher consumer confidence and the festive season did wonders for car sales in August; while market leader Maruti Suzuki posted a 42 per cent growth, Mahindra & Mahindra, showed a 42 per cent rise in sales of its multi-utility vehicle range, while Hyundai Motor India and Tata Motors showed 11 per cent increase over the same month last year.

India, who had to resort to IMF loans on a few occasions till the early nineties, will now take part in a global effort to make resources available to the International Monetary Fund (IMF) for lending to countries in need. India will invest up to $10 billion of its reserves in Notes issued by the IMF; such investments would be treated as international reserves.

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Indian Foreign Trade Policy (FTP 2009-14)

In the last five years India’s exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. India’s share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. India’s share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.
As the export sector has been a major casualty in this downturn the Indian Government has set in motion strategies and policy measures which will catalyse the growth of exports. The short term objective of the Foreign Trade Policy (2009-14) is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world.

The Policy Objectives are as follows:

a) Achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011.
b) In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum.
c) By 2014, the policy aims to double India’s exports of goods and services.
d) The long term policy objective for the Government is to double India’s share in global trade by 2020.

HIGHLIGHTS OF FOREIGN TRADE POLICY 2009-2014

Higher Support for Market and Product Diversification

1. Incentive schemes have been expanded by way of addition of new products and markets.
2. 26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania.
3. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
4. The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. 5. A large number of products from various sectors have been included for benefits under FPS.
6. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded.
7. MLFPS benefits also extended for export to additional new markets for certain products.
8. A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY.
9. Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided.

Technological Upgradation

1. To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced.

EPCG Scheme Relaxations

1. To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.
2. Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14.

Stability/ continuity of the Foreign Trade Policy

1. To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010.
2. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10.
3. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10.
4. The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.

To read more about the FTP click: Foreign Trade Policy

India Budget 2009-10

The Union Budget of India for fiscal year 2009-10 was presented on July 6th. The Budget aims to regain a growth momentum of 9% at the earliest and is aimed at inclusive growth for the economically weaker sections of the population. The Budget initiates the process of rationalizing the tax structure in the country and bringing it at par with international practices. It delays the date with fiscal prudence as the need of the hour is to boost domestic demand given the adversities in the external scenario which is expected to continue for some time more. Most of the policies are addressed to the twin benefits of boosting domestic demand and reducing inequality within the country’s population.

Following are the highlights of the pre-Budget Economic Survey 2008-09.
1. Economic growth decelerated in 2008-09 to 6.7 per cent. This represented a decline of 2.1 per cent from the average growth rate of 8.8 per cent in the previous five years (2003-04 to 2007-08).
2. Per capita GDP growth, a proxy for per capita income, which broadly reflects the improvement in the income of the average person, grew by an estimated 4.6 per cent in 2008-09.
3. Investment remained relatively buoyant, growing at a rate higher than that of GDP. The ratio of fixed investment to GDP consequently increased to 32.2 per cent of GDP in 2008-09 from 31.6 per cent in 2007-08, reflecting the resilience of Indian enterprise, in the face of a massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets.
4. A decline in all major elements of private demand, including exports and consumption, necessitated a compensating widening of the fiscal deficit above the Fiscal Responsibility and Budget Management Act (FRBMA) target. The new, higher expenditures announced during the 2008-09 budget, had to be supplemented by an additional fiscal expansion, leading to an increase of 20.2 per cent in government final consumption expenditure during 2008-09. The effect of this and subsequent fiscal stimuli (e.g. excise and service tax reduction) on private demand would be expected to appear gradually with a lag.
5. The Budget for 2008-09, which marked the terminal year of the achievement of the targets under FRBMA, had envisaged fiscal deficit of the Centre at 2.5 per cent of GDP, which was lower than the 3 per cent mandated level; but the other key target, namely elimination of revenue deficit was put off by a year, with the level of deficit estimated at 1.0 per cent of GDP. As the year 2008-09 progressed, the Indian economy was seriously impacted by the twin global shocks – unprecedented increase in the global commodity prices in the first half of the year and the ripple effects of the deepening of the global financial crisis in the second half. As per the Revised Estimates (RE) for 2008-09, fiscal and revenue deficits of the Centre were placed at 6.1 per cent and 4.5 per cent of GDP, respectively.
6. Inflation, which was rising but which was in single digit up to end-May, reached double digits from June to mid-October , with the price of crude touching US$ 147 in July 2008, and remained above 8 per cent up to end-November. While overall inflation as at end-March 2009 registered merely 0.8 per cent, the group-wise inflation rates varied.
7. In 2008-09, the value of merchandise exports reached US$ 168.7 billion with a growth of 3.6 per cent despite global recession, thus achieving 96.4 per cent of the revised export target of US$ 175 billion. While export growth was robust till August 2008, it became low in September and turned negative from October 2008 to March 2009. The negative trend continued in April 2009 with export growth at -33.2 per cent.
8. The exchange rate was Rs.51.2 per US$ in March 2009, reflecting 21.9 per cent depreciation during the fiscal 2008-09. During fiscal 2008-09, out of the decline of US$ 57.8 billion in foreign currency assets (from US$ 299.2 billion on 31.3.2008 to US$ 241.4 billion on 31.3.2009), the fall of US$ 39.7 billion (69 per cent) was due to valuation change and only US$ 17.9 billion (31 per cent) was on account of net sale of dollars by the RBI.

Following are the highlights of the Indian Union Budget for FY2009-10:

>> Real and Nominal GDP growth assumed at 6.5 and 10.05 per cent respectively in 2009-10
The fiscal stimulus provided in 2008-09 at 3.5 per cent of GDP at current market prices amounted to Rs.1,86,000 crore
>> FRBM targets for the current year and for fiscal 2009-10 relaxed to provide much needed demand boost. However, medium term objective is to revert to fiscal consolidation at the earliest.
>> Total tax receipts expected at Rs 641079 crore.
>> Total budgetary allocation (expenditure) increased by 36 per cent over 2008-09 (BE) to Rs 1020838 crore; out of this Rs.6,95,689 crore is under Non-plan and Rs.3,25,149 crore under Plan; increase in plan expenditure is 34 %, while non-plan is 37 %.
>> Interest payment consists of 36% of non-plan expenditure.
>> Net market borrowing seen at Rs 398000 crore.

>> IT exemption limit raised: Limit raised by Rs 15,000 for sr.citizens (65 yrs & above to Rs 2,40,000); Limit raised by Rs 10,000 for general tax payers to Rs 1,60,000 & women to Rs 1,90,000; 10% surcharge on personal income tax eliminated
>> Corporate Tax unchanged; Minimum Alternate Tax hiked from 10% to 15% of book profits.
>> Fringe benefit tax (FBT) to be abolished.
>> Commodity transaction tax (CTT) to be removed.
>> Goods and Services Tax (GST) to meet its deadline in April 2010 The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services. Internationally, GST is based on supplies of goods/ services, rather than on manufacture and sales, and there are fairly elaborate rules governing the time and place of supply. In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction. This reduces the burden of multiplicity of customs, excise and some other taxes presently levied.
>> Direct tax proposal would be revenue neutral Govt to gain Rs 2000 crore from indirect tax proposals

>> While retaining at least 51 per cent government equity stake in PSUs, disinvestment proceeds for 2009-10 estimated at 1120 crore
>> PPP projects particularly in Infrastructure to be given priority: IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors involving total investment of Rs.1,00,000 over the next 15-18 months.

>> Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 per cent over 2009 (BE); allocation to railways also increased over the Interim Budget allotment.
>> Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs. 12,887 crore:
>> Allocation for housing and provision of basic amenities to urban poor enhanced to Rs.3,973 crore
>> Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent to Rs.2,080 crore.
>> Target for agriculture credit flow set at Rs 3,25,000 crore for the year 2009-10 (actual credit flow had been at Rs 2,87,000 crore in 2008-09); interest subvention to be continued in 2009-10 to ensure that farmers get short term crop loans upto Rs.3 lakh at 7 per cent per annum; rebate for farmers paying loan on time at a lower of rate 6 per cent; 75% hike in allocation to irrigation projects.
>> Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 per cent to Rs 39100 crore.
>> Allocation for Bharat Nirman increased by 45 per cent Rs.40,900 crore: Allocation to rural housing (Indira Awaas Yojna) hiked by 63% to Rs 8,883 cr. ; Rs 7000 crores allocated for rural electrification scheme.
>> Allocation under National Rural Health Mission (NHRM) increased by Rs 2057 crore over the allocation in Interim Budget 2009-10 to Rs 12070 crore.
>> The overall Plan budget for higher education is to be increased by Rs 20 billion over the Interim Budget
>> Defence outlay up 34% to 104703 crore; grants for securing borders etc and for the State Polce forces enhanced over the Interim Budget allocations
>> A provision of Rs.120 crore in the Annual Plan 2009-10 made for Unique Identification Authority of India to set up online data base with identity and biometric details of Indian residents and provide enrolment and verification services across country.
>> Export Credit Guarantee scheme extended till March 2010 ; Market development assistance schemes allocation up by 180% to 124 crore ; 2% Interest subvention for exporters; interest subvention extended to March 2010 for employment extensive export sector; special fund for Small Industries Development Bank of Rs 4000 crore

>> Expert group to be set up petroleum product pricing to bring domestic oil prices in sync with global crude as 75% of our oil basket is imported.
>> Rs.100 crore set aside as one-time grant in-aid to ensure provision of at least one centre/Point of Sales (POS) for banking services in the unbanked blocks; Government to recapitalize the public sector banks over the next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent.

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Development of the Indian Debt Market

India's corporate bond market remains underdeveloped despite strong economic growth and significant financial system reforms, the Asian Development Bank said in a report last April. The report found that corporate borrowers continue to depend on bank loans, equity markets and private placement to meet their requirement of funds. http://aric.adb.org/pdf/workingpaper/WP22_India.

The secondary market activities in corporate bonds have started to pick up; efforts of Securities Exchange Board of India (SEBI) and the stock exchanges to bring the trading to electronic stock exchange platforms have started to yield desired results:

Date	BSE		NSE		FIMMDA		Grand Total
---	No. of Trades*	Amount(Rs. Cr.)*	No. of Trades*	Amount (Rs. Cr.)*	No. of Trades*	Amount (Rs. Cr.)*	No. of Trades*	Amount (Rs.Cr.)*
2007-08	27697	41186.73	3787	31453.14	4089	23479.01	35573	96118.88
2008-09	417376	38057.92	4902	49505.39	9585	61535.15	429642	148751.96

Indian financial markets regulator SEBI has recently issued simplified rules governing corporate debt paper, thereby making it possible to raise debt funds quicker on domestic capital markets. Companies that have already floated one debt or equity issue can now cut through several layers of paperwork when issuing another tranche. The long-winded vetting process that accompanied each issue made companies reluctant to use this route and they prefer private placement, often arranged by bankers Rs 2 lakh crore in corporate debt raised in fiscal 2008-09 has been through private placement, though this is, incidentally, a huge jump over the Rs 1.28 lakh crore raised in the previous year through the same route, it is not yet an indication of a healthy debt market which needs public issues and liquidity in the secondary market for efficient price discovery to take place. The new listing agreement, though, stipulates that an issuer must maintain 100% security cover for listed secured debt securities at all times and ensure that charges on the assets are registered. Disclosure norms have also been made more stringent to draw in investors; the issuer is required to separately mention the debt service coverage ratio and interest service coverage ratio after the item earnings per share while submitting half-yearly or annual results. Currently, institutions that invest in corporate bonds mostly prefer short-term maturity paper rather than long-term ones, high liquidity and long-term players like pension funds and insurance companies are crucial to the development of the corporate bond market in India. http://ssrn.com/abstract=421440

A long standing proposal to improve liquidity in buying and selling of government bonds .through introduction of Separate Trading for Registered Interest and Principal of Securities (STRIPS) is likely to be introduced in the current fiscal year. While initially only select identified G-Secs will be converted into STRIPS, it is expected to provide institutional investors an additional instrument for asset-liability management. A detailed explanation of STRIPS and its benefits may be found in the following article: The Strips Programme and its Implications for the Indian Gilts Market-A Note
http://www.icra.in/files/pdf/MoneyAndFinance/aprsep2002gilts.pdf

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Crisis and Investment

According to a report by Barclays the pace of global output shedding has exceeded the drop in demand by a large margin, to the point where output is now well below demand, a situation that tends to bring its own reversal relatively quickly and hence augurs well for global economic recovery.
The World Bank has warned that the recession may trigger curtailment in spending, but increasing investment in public infrastructure during a crisis is the key to growth for emerging economies like India, since, infrastructure projects often take years to prepare, but postponing them has a drastic knock-on effect for medium term growth. As for project investments in India, according to the survey by Projects Today, as of March 31, 2009, there were 29,628 projects worth Rs 42,35,484 crore, a rise of 37.4 per cent in terms of investment and 29 per cent increase in terms of number of projects over the year-ago period. Going forward Projects Today expects the public sector to continue its project investment activities during 2009-10 in the critical infrastructure sectors like roadways, water supply, electricity, irrigation and community services, the same cannot be vouched for the private sector, which appears to be waiting for some more concrete signs of revival. Given this situation, the pace of project investment is thus expected to remain moderate at least in the first half of 2009-10. The industry on the other hand is concerned over prime lending rates ruling well above 10 per cent even when inflation has reached near- zero level and a debate has been raging about the need to abolish sub-prime lending to bring down the PLRs.
Meanwhile, China has unveiled a $10 billion fund and liberal credit lines to help promote a range of infrastructure projects in Southeast Asian nations reeling from the global economic crisis. China has planned to establish a China-ASEAN investment cooperation fund totaling $10 billion, designed for cooperation on infrastructure construction, energy and resources, information and communications in member states like Thailand, Malaysia, the Philippines, Singapore, Laos, Myanmar, Cambodia, Brunei, Vietnam and Indonesia.

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Indian Financial System Found to be Broadly Robust

The Government of India, in consultation with the Reserve Bank, in September 2006 constituted the Committee on Financial Sector Assessment (CFSA) to undertake a comprehensive self- assessment of India’s financial sector (based on the principles of the FSAP of IMF & World Bank). The CFSA recently assessed financial stability and also compliance with all financial standards and codes so that a compact roadmap could evolve with a medium-term perspective for the entire financial sector. From this study, the Indian commercial banking system has shown itself to be sound. This is important because commercial banks are the dominant institutions with linkages to other segments in the Indian financial system, accounting for around 60 per cent of its total assets. The main results related to different types of risk include the following:

Credit Risk Stress testing for credit risk was carried out by increasing both the NPA levels and provisioning requirements for standard, substandard and doubtful assets. The analysis was carried out both at the aggregate level and individual bank level. The findings revealed that the impact of credit risk on banks’ capital position continues to be relatively muted. Under the worst-case scenario (at 150 per cent increase under Scenario I), the overall capital adequacy position of the banking sector declined to 10.6 percent in September 2008 as against 11.0 per cent in March 2008. Thus, it may be noted that even under the worst case scenario, CRAR remained comfortably above the regulatory minimum.

Market Risk To test the banking system’s resilience to market risk, interest rate risk stress tests were undertaken using both earnings at risk (EaR), as also the economic value perspective. In the EaR perspective, the focus of analysis is the impact of changes in interest rates on accrual or reported earnings. The banks have been actively managing their interest rate risk by reducing the duration of their portfolios. The duration of equity reduced from 14 years in March 2006 to around 8 years in March 2008 – a pointer to better interest rate risk management. Taking the impact based on the yield volatility estimated at 244 basis points (bps) for a one-year holding period showed, ceteris paribus, erosion of 19.5 per cent of capital and reserves. The CRAR would reduce from 13.0 per cent to 10.9 per cent for a 244 bps shock. The CRAR of 29 banks that account for 36 per cent of total assets would fall below the regulatory CRAR of 9 per cent. These results remained broadly robust for different plausible stress scenarios and assumptions.

Liquidity Risk Liquidity risk originates from the potential inability of a bank to generate liquidity to cope with demands entailing a decline in liabilities or an increase in assets. The management of liquidity risk is critical for banks to sustain depositors’ confidence. The importance of managing this risk came to the fore during the recent turmoil, when inter-bank money markets became illiquid. Typically, banks can meet their liquidity needs by two methods: stored liquidity and purchased liquidity. Stored liquidity uses on-balance sheet liquid assets and a well-crafted deposit structure to provide all funding needs. Purchased liquidity uses non-core liabilities and borrowings to meet funding needs. While dependence on stored liquidity is considered to be safer from the liquidity risk perspective, it has cost implications. A balanced approach to liquidity strategy in terms of dependence on stored and purchased liquidity is the most cost-effective and optimal risk strategy. To assess the banking sector’s funding strategy and the consequent liquidity risk, a set of liquidity ratios has been developed and analysed in detail. The analysis of this set of liquidity ratios reveals that there is growing dependence on purchased liquidity and also an increase in the illiquid component in banks’ balance sheets with greater reliance on volatile liabilities, like bulk deposits to fund asset growth. Simultaneously, there has been a shortening of residual maturities, leading to a higher asset-liability mismatch. There is a need to strengthen liquidity management in this context as also to shore up the core deposit base and to keep an adequate cushion of liquid assets to meet unforeseen contingencies.

Apart from commercial banks the report also analyses NBFCs, HFCs, the insurance sector, as well as equity and debt markets. It also looks at the financial infrastructure, including regulatory and legal infrastructure. Use the following link to read the entire report: http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1962

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Vote for Earth Hour 60!!

On the 28th of March 2009 at 20:30hrs, will kick start the world's biggest movement on climate change. It is estimated that over a billion people across the world, will come forward to "Vote for Earth" by simply switching off their lights between 20:30 hrs to 21:30 hrs. It will be history in the making, as we now have over 1508 cities and towns across the world, who have already pledged their support to this global campaign on climate change. Join WWF on the 28th of March 2009 by switching off your home and office lights to switch in to this global movement on climate change and be the change you wish to see in this world. Blogsite: http://wwfindia.blogspot.com

Business Expectations in India

Dr. Alamgir, thank for your comments and encouragement. We completely agree with your view on the “Signs of Recovery?” and hence the question mark. A see-saw ride is indeed the most apt description of what the Indian economy is likely to experience in the next 2 quarters at least. We do hope that investment projects will pick up once the new Government is in place. If the increased Rural demand is sustained then it would be an additional boon. Here are some survey based reports on business expectations in India. The corporate sector expects the period of downturn in the Indian economy to continue till May 2010 before bouncing back in response to the fiscal and monetary policy stimulus and abatement of recession in the international economy, an ASSOCHAM Business Barometer (ABB) Survey of 237 CEOs has revealed. The ABB Survey “Economic Outlook for India” was based on the responses from 237 CEOs and Managing Directors across fifteen sectors at small, medium and large scale level companies. The survey was done during the month of February. In the ABB Survey, 84 per cent of the CEOs polled across various business segments were unanimous about the view that poor Business Confidence in India may extend till the middle of the next year. Around 77 per cent of the industry heads believed that the growth rebound would be faster and sooner in India than the developed economies of US and Europe. In its 12th Annual Global CEO Survey, PWC said confidence of CEOs had plunged to its lowest level since 2003, when PWC began tracking CEOs' forecasts. Worldwide, just 21 per cent of CEOs said they were very confident of revenue growth in the next 12 months, down from 50 per cent in last year's survey. And more than a quarter of CEOs said they were pessimistic about prospects for the coming year. However, the business in India painted a contrasting picture with 70 per cent Indian CEOs expressing confidence about both short term and long term revenue growth, compared to 21 per cent and 34 per cent globally. India has recorded the highest CEO confidence levels amongst the emerging economies, and is also one of only two countries globally which are as confident about short term revenue growth as about long term revenue growth. Despite the global economic downturn affecting even the emerging economies, Indian CEOs continue to be very optimistic. India's economic growth is seen slowing to 5.5 percent in 2009/10 from an estimated 6.8 percent in the current fiscal year ending in March, Citigroup said in a recent note. However, it expects policy measures and lower commodity prices to set the stage for a pickup in 2010/11.
* Growth could decelerate due to contraction in exports, single-digit investment growth and moderation in consumption.
* Inflation could see a "negative patch" during June and September, and should average 3 percent in 2009/10, compared with 9 percent this fiscal.
* Citigroup said it expects an additional 100-150 basis points easing in interest rates in 2009/10 on the back of benign inflation and limited fiscal space and the continuation of indirect fiscal measures as the country's high fiscal deficit limits the scope for a direct fiscal stimulus.
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Signs of Recovery?

Even as US jobless claims continued to rise, retail sales slipped and businesses slashed inventories for the fifth continuous month, JPMorgan reported some signs of recovery. According to Larry Cudlow, consumer incomes, after tax and adjusted for inflation, have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices. Housing affordability is at a record high. Purchasing-manager surveys are now bottoming out and the Treasury curve has been normalizing from its inverted shape, usually taken preceding a recession. Barclays too reported that commodity prices, including oil, have started to bottom out and are likely to rise in the second quarter. China's economic leaders held that according to economic statistics, the economy was already reviving in response to swift action to counter the shock of the global financial crisis. In India too, even though Industrial output dipped in January, but a strong double digit (15.4%, yoy) growth reported by the Consumer Goods sector hinted at recovery in demand and easy credit availability. FDI to India has shot up by 90% during the April-November period of the current fiscal, despite the global crisis conditions. One can only hope that Indian infrastructure would be toned up in the near future with strong government investment, as more than a third of corporate heads have gone on to say in a study conducted by KPMG and EII, that Indian infrastructure is very much inadequate to support their growth plans. Govt spending in this sector would also help to revive demand as earnings of workers in labour-intensive sectors are falling; average earnings was down by 3.5% per month in the third quarter of this fiscal. With the INR plunging to record lows, the labour-intensive Indian textile industry hopes to gain, as this export-oriented industry as these goods become cheaper in the international market due to the falling rupee.
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Market Meltdown in Early March

The markets slipped to over three-year lows this week, in tandem with world markets, which also tumbled to multi-year lows. The Sensex, which began the week with a negative gap of 129 points at 8,763, hit a low of 8,047. However, the index recovered partially and closed the week with a loss of 6.4 per cent (566 points) at 8,326. With the stock market buckling under negative global cues* and heavy selling by foreign investors, shares of over 160 firms, including Reliance Communications, Ranbaxy Labs and Suzlon Energy, plunged to their all-time lows. FIIs have sold as much as Rs 458.30 crore in Indian equities in the first week of March and their total sell off in 2009 amounting to Rs 2,114.60 crore. Trading volumes in index options have been steadily rising, as a result of investors seeking a hedge against volatility in a declining market. In December, the average daily contracts in index options (NIFTY, MINIFTY AND BANKNIFTY options) on NSE was 10,07561. This rose in January to 10,60,784 and in February to 11,30,273. The first few trading days of March have seen index option volumes rise on a daily basis; on Friday index options reached a record 16,77,878 contracts on the exchange. The open interest positions in Nifty options are also high, indicating a bearish view on the Nifty according to brokers. *The number of US bank failures is mounting as 17 lenders went bankrupt so far this year amid the deepening recession in the world's largest economy; in February 2008, 10 banks were closed down, making it the highest for any month since 2000. A total of six banks had failed in January and one in March. The US unemployment rate has moved to a record high of 8.1% in February.
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