India Economy: 2009 Forecast

New Delhi, 16 Dec. 2008 started out well enough with growth figures approaching 10%. However, with the massive financial troubles which began towards the end of 2008, 2009 does not look quite as good. The Asian Development Bank (ADB) has projected growth of a mere 6.5%. Previously, it had forecast 7%, down from another earlier estimate of 7.4%. ADB stated, “India, South Asia's most dynamic economy in recent years, is reeling from the direct effect of the global financial crisis on its banking systems and financial markets. The growth projection for India has been revised down to seven per cent in 2008 and 6.5 per cent in 2009, from 9 per cent in 2007.” In the first week of December, the World Bank anticipated the Indian economy would grow by 6.3% in 2008 and 5.8% in 2009. It realized a 7.8% expansion in the first half of this fiscal year against 9.3% a year ago. The economy grew by 9% for the entire last fiscal year. Inflation has been an ongoing threat in India, especially when it reached a peak of 12% in early August, 2008. Much of what drive this inflation is the country’s rapid growth and rising oil prices. Oil has fallen considerably since then, easing inflation. Manufacturing is expected to be hit in 2009 due to a decreased demand as a result of the global downturn. India’s growth is not totally dependent on the West, but the slumps in the US, Europe, and even the Far East will be felt in India’s exports. The Indian government will need to accelerate its reforms and push for more investment if it wants to maintain good growth rates in the face of the global slowdown. In a news conference with the World Economic Forum (WEF), CII director general Chandrajit Banerjee said, “"There is a pressure on bottom lines (of companies). Production is down. We do see economic growth moderating to 7.4-7.8 percent this fiscal.” "Since inflation is down, we expect more fiscal and monetary measures to give a momentum to growth. The government should increase expenditure in infrastructure sector and put on-going projects on the fast track," he continued, but dismissed fears of large-scale corporate lay-offs. The worldwide credit crunch has led to foreign investors dumping shares amounting to more than $12.5 billion, and the rupee has fallen in excess of 20%. The WEF said, "It (global crisis) could also weaken the balance sheets of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking global growth.” In November, Prime Minister Manmohan Singh warned that the global financial crisis may be worse and longer than many had expected, but that the government would take the necessary monetary and fiscal action to protect growth in India. Charles Cole, EconomyWatch.com