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Indian economy to grow 7.5% in 2012 as compared to 6.9% in 2011 [ESCAP Report]

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As the markets slide to 4 month lows and poor Q4 results project a grim outlook for the Indian economy in 2012. However United Nations, Economic and Social Survey of Asia and the Pacific (ESCAP) report outlines defining factors that project growth and stability of Indian economy and surrounding regions in the Asia-Pacific.

For India, ESCAP puts forward a positive outlook for increased GDP growth in 2012 as compared to 2011.

Inflation remains one of the key things to watch out for in 2012. Until recently RBI has increased raise policy rates 13 times in 19 months. For the first time in many months, the policy rate was reduced by 50 basis points, hinting towards an easing monetary policy. As the government and RBI loosen their death grip over monetary and fiscal policies, ESCAP has a positive outlook for growth in 2012.

On the brighter side, despite tighter monetary policies that directly impacted personal consumption and demand, GDP grew by 6.9% in 2011. The ESCAP survey talks about reducing the impact of inflation on the poor by strengthening the government’s already existing policies to increase distribution of food items at subsidized prices.

India GDP Growth Rate

Fiscal and budget deficit are challenges that India Inc will have to deal with rigorously. The government has already put targets in place to reduce budget deficits, however failed to achieve them for 2011 due to higher than expected expenditures.

The ESCAP survey acknowledges that the growth in trade deficit combined with depreciation of the rupee against the dollar have contributed to the slowdown in India in the last few years.

Energy shortage was also highlighted as possible deterrent to a fiscal surplus on which Kaushik Basu, Chief Economic Advisor to the Government of India, said "If the global prices are high for a product that is imported there is no way you can totally shelter the population. If you shelter it by holding that price completely constant, it appears that you are sheltering customer… but you are building on your fiscal deficit" The report talks about measures like reducing power theft, increasing exploration of oil and gas and developing renewable energy resources.

While all this does not happen overnight, India has taken massive strides in the field of solar energy. On the upside, more than 10 solar parks have been either completed or commissioned in various stages throughout India in the last 2 years.

The Indian government is currently promoting development and use of solar energy by moves such as reducing custom duties on solar PV panels, acknowledging investment in renewable energy projects and even giving subsidies of up to 70% for investments in solar PV plants in certain areas.

On an aggregate basis, inflation, soaring energy costs and poverty are dragging on the economy which grew 6.9% in 2011.

However key fundamentals of the Indian economy including a fast growing workforce, better policies, high savings / investment rates, and promotion of alternative / renewable energy will drive a projected growth of 7.5% for the Indian economy in 2012.

  1. Sumit Vaishnav says

    indian economy is robust, the need is jst to curb corruption and a sense of patriotism for the nation.

  2. Altaf Rahman says

    I dont think 7.5% GDP growth is possible in 2012.

    Lets talk outlines of GDP growth.
    The main factors considered for calculating GDP growth are Agriculture, Industry, Infrastructure and Services.

    Agriculture : We dont expect more encouraging food production after a good season last year. Even if we have as wide spread rains as we had last year, we will just maintain the production. Not growth. May be due to continuous development in seeds, good practices, the agri production may go up by 1 or 2%. It will not convert to a good GDP growth.

    Industry : Forget growth. Industry is decelerating due to funny policies of govt. Govt is scaring away Industry. Take Steel Plants-The mining laws, env laws and the scandals in iron ore mining are not positive. Take Power plants – Coal is getting scarcer and owners are forced to import expensive coal for which there is no buyer (mostly state govt elec boards) is coming forward to pay more.

    Infrastructure : Except road projects, no other infra project has an encouraging picture. Steel, Cement, shipping, O&G, are suffering.

    Services : Indian IT industry is not able to take advantage of falling rupee. Infy, TCS, Wipro results and their forecast for next year are proof.

    Based on the above, I dont see 7.5% growth. It may even fall down to 5%.

    Now the optimists may sing the song of ‘Shining India’. But that has become old song. No stuff in it. Govt is taking one stupid policy decision after another. RBI is not in a position to intervene in falling rupee (in fact why should they?) First of all, the present govt has to go. Then the next govt has to concentrate on economic development and not waste its time in stupid issues. Then we can grow faster.

    Just my two paisa :)

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