As the economic crisis in the US and other advanced economies gets from bad to worse, the ripples that would felt here could only get stronger – no matter how insulated India’s economy might be.
If latest official macro-economic data is any indication, the fiscal package announced by the government earlier this month to revive the economy may not go far enough to reverse the slippage in growth rate headed India’s way.
Gross domestic product (GDP) has grown by 7.8 per cent during the first six months of current fiscal year, but the mid-year economic review tabled in Parliament this week cautioned that it will be “significantly slower” in the second half as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, begin to be felt.
The International Monetary Fund (IMF) has projected that India's GDP is likely to slow to 6.3 per cent in 2009, while the Reserve Bank of India (RBI) has revised GDP growth forecast for 2008-09 to a range of 7.5-8.0 per cent.
The mid-year review prepared the country for a 7 per cent growth scenario after four years averaging 8.87 per cent per year.
Industrial output in October contracted by 0.4 per cent and exports plunged by 12 per cent, while excise duty collections—the tax imposed as the product travels from the factory to the final retail selling point—fell by 15 per cent in November, mirroring the seriousness of the slowdown.
In a mini-budget of sorts, the government had announced a series of measures in the first package on December 7 that included an across-the-board cut in the Cenvat — key indirect tax imposed at various stages of the manufacturing process.
Exporters, whose earnings contribute about 15 per cent of the country’s national income, are anxious as demand for their goods shrink globally.
India exported $158 billion worth goods last year, but many analysts, including government officials believe it is unlikely to meet the current year’s target of $200 billion worth of merchandise exports.