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.
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.