At 7 per cent growth, India would still rate among the fastest-growing economies in 2009-10, perhaps next only to China, despite being buffeted by an extraordinary global economic meltdown.
“Current indications of the global situation are not encouraging,” finance minister Pranab Mukherjee said in his Interim Budget speech for 2009-10. “Forecasts indicate that the world economy in 2009 may fare worse than in 2008.”
Latest national income figures show that India’s gross domestic product (GDP) growth rate would fall sharply by nearly 2 percentage points from the sizzling growth of 9 per cent recorded last year.
This is still higher than the US and many countries in European Union that have clocked negative growth in the last few months amid piling rubble a global financial meltdown.
China grew by 9.1 per cent in 2008 despite shrinking demand for its exports.
With an inflation rate of around 4 per cent, India could well be the envy of the world economy.
“The GDP in the nominal terms is a function both of estimated growth and inflation,” economic affairs secretary Ashok Chawla said at a post-budget press conference. “These are expectations. We expect growth to be at the order of 7-7.5 per cent next year and inflation to be no more than 3-3.5 and maximum 4 per cent.”
In recent months the government has taken a slew of fiscal measures, including sharp cuts in excise duties and increased plan spending, to help the economy tide over the ripple of a recession in the world’s developed countries.
But those sops are set to push up the central government’s fiscal deficit to a worrisome 6 per cent of GDP. Add to that, off-budget expenses like oil and fertiliser subsidies, and government finances could be left with a gaping hole of over 10 per cent.
Analysts sounded more bullish about the prospects of the Indian economy than many of its Asian peers.
“India offers a unique combination of having a relatively less open economy and an open equity market,” said Rajeev Malik of Macquire Securities. “While India’s export dependence has increased in recent years, it is still significantly less than that of other Asian economies.”
Industrial production touched a new low toward the end of 2008, falling 2 per cent in December. Industrial growth between April and December -- the first nine months of the current fiscal year -- fell to 3.2 per cent from 9 per cent from a year earlier.
Consumer durables, consumer non-durables, and intermediate goods —o all showed a decline in production with the durables falling the most.
The country’s macroeconomics managers would have to thrash out ways and means for raising extra borrowing for next year as most expect the new government to unveil a fresh set of measures to stimulate a decelerating economy.
“It is important to take considered steps in the emerging situation,” Arun Ramanathan, finance secretary said. “The government’s fiscal stimulus package was key.”
The government in 2009-10 will raise Rs 3,08,647 crore, which is 17 per cent higher than this fiscal, of which Rs 45,000 crore will be come from sources other than market borrowings and private placement.
“We will neither raise it through market borrowing nor private placement or bonds. We will decide on the modalities later,” Ramanathan said.
India’s exports contracted for the third successive month plunging by 1.1 per cent in December as policymakers grope for options to sustain growth amid the worst slowdown in the world economy in the last 80 years.
Chawla said that the government’s immediate job at hand was to ensure that the “economic growth comes back to its high growth path. Public spending therefore is crucial to revive general demand.”
With the option of fiscal instruments virtually closed till a new government assumes office, all eyes are on the Reserve Bank of India (RBI) to use the monetary lever.
Home Minister P Chidambaram, who steered the economy to sizzling heights, said “the Indian economy has weathered the global crisis reasonably well and is expected to post a growth rate of 7.1 per cent in 2008-09.”
“We expect the RBI to cut interest rates further before the April monetary policy review to stimulate demand to a certain extent,” said Kaushal Sampat, chief operating officer of information services and consulting firmDun & Bradstreet India.