Admist all the speculations doing rounds on the India Growth Story, the recent upgrade of Indian Growth forecast by the Asian Development Bank clearly shows that India is going to come out stronger from the ongoing economic crisis.
The Asian Development Bank on Tuesday raised India’s growth forecast for 2009/10 on higher public spending, stronger factory output and improved business confidence. In the Asian Development Outlook 2009 update, the bank lifted the growth forecast for the year ending -March 2010 to 6 percent from earlier 5 percent.
In 2010/11, it expects the economy to grow by 7 percent from the previously estimated 6.5 percent on hopes of better rainfall and a rebound in exports. In the 2008/09 fiscal year, India’s economy grew 6.7 percent, its weakest in six years and well below rates of 9 percent or more in the previous three years.
This upgrade could be largely attributed to the increased government spending to stimulate demand and the reduced taxes. It is notable that the central bank cut its main lending rate by 425 basis points from October 2008 to April this year and injected massive liquidity into markets.
However, the RBI and the finance minister are eyeing a more than 6.5% growth this fiscal year. With monsoons playing spoil sport, the agricultural output which is the mainstay of our GDP is bound to take a hit and dent the growth of Indian Economy.
The multilateral bank said weak agricultural output is expected to weigh on economic growth in the September and the December quarters and the economy is likely to rebound in the March quarter.
With the second quarter results on the anvil, it will be more clear as to how the pillars of Indian Economy are growing. The industrial output has shown an increase and declining value of rupee for this quarter should see the likes of Infosys come out with healthy numbers in their second quarter results.
However, the ADB outlook also points out some downside risks linked to the India Growth story with the rising fiscal deficit leading the pack. India’s federal fiscal deficit in 2009/10 is projected to rise to 6.8 percent of the GDP, a 16-year high, to be funded by a record 4.51-trillion-rupee ($94 billion) market borrowing.
With the food articles index surging at an annual 15 percent, it is unlikely that the RBI will be able to speed and early exit from its easy monetary policy.
It is also worth noting that Nomura (folks who bought out Lehman brothers) have actually downgraded the Indian Growth outlook from 7% to 6%. So, even the worst case scenario also points out a minimum 6% growth, which is significant given the doldrums the global economy is in right now.
[This Finance Friday post has been written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]