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Hopes of a sustained recovery in the Indian economy has sprung anew with a slew of recent data showed robust growth in most sectors, but prices remain a key concern.

india Updated: May 20, 2010 00:24 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times

Hopes of a sustained recovery in the Indian economy has sprung anew with a slew of recent data showed robust growth in most sectors, but prices remain a key concern. Wheel of fortunes of the UPA

Latest data released showed that car sales grew nearly 40 per cent in April after having recorded healthy sales in the last few months.

Industrial output grew by 10.4 per cent in 2009-10 and consumer durables production has grow by over 30 per cent in the last five months, perhaps indicative of higher purchases of televisions and refrigerators and also growing consumer appetite.

“The economy weathered the global credit storm much better than expected, and the recovery is stronger than expectations driven by a pick-up in private sector-led domestic demand,” said Rajeev Malik, Head of Economics Research (Asean and India) of Macquarie Securities.

Last year around the same time, when Pranab Mukherjee assumed office as the finance minister, uncertainty had gripped the Indian economy.

Growth of the Indian economy slowed to 6.7 per cent in 2008-09 after growing at close to 9 per cent for four straight years before the meltdown. It is set to grow by 7.2 per cent in 2009-10.

The finance ministry responded by announcing a fiscal stimulus package of Rs 1,86,000 crore or 3.5 per cent of GDP to help industry tide over the downturn.

RBI supplemented this by slashing key rates aimed at bringing down the cost of borrowing for embattled corporations.

“As a combined impact of various fiscal stimulus measures and the supporting monetary policy the industrial sector was able to reverse the declining trend in its growth since June 2009,” a senior government official said who did not wish to identified.

Things are different this year.

Corporate India has registered healthy growth in profits and revenue for the current fiscal. A quick analysis of 63 companies on BSE 500, which have announced their annual results, reveals that they have posted a profit growth of 26 per cent, their revenue growth stood at 50 per cent.

Agri & prices: key concerns
Agricultural production is expected to shrink 0.2 percent in 2009-10 as a result of last year’s drought, the worst in 40 years. And it has had a major bearing on prices.

India's inflation in April was estimated at 9.6 per cent, as food prices continued to remain at elevated levels pummelled by a supply crunch in staple items such as cereals and sugar.

Finance Minister Pranab Mukherjee has had to carefully walk the wedge on resource for fiscal consolidation, sustain growth, signal a rollback of stimulus package and yet keep prices under check.

But inflation in manufactured products, which has reached nearly 7 per cent, has emerged as the latest worry for policy makers mirroring signs that the spectre of price rise have lengthened across the broader economy.

“I am concerned about the prevailing high inflation in the economy. Inflation erodes real income. It hurts the marginalised, the poor segment of our society the most,” finance minister Pranab Mukherjee said last week at he annual function of the Confederation of Indian Industry (CII) here. “I am hopeful that the way the government meticulously planned economic recovery... likewise we would beat the high inflation in the coming few months.”

Chief statistician Pronab Sen said inflation could cool down further in coming months, although concerns about high prices of industrial products remain.

“Fear of inflation spreading from food to other sectors is still there. It will take a little bit of more time for it to come down. I hope inflation would be on declining trend hereafter,” Sen said.

First Published: May 19, 2010 23:01 IST