Sign of green shoots is widely visible globally, especially in India, where day by day, Sensex is touching new high of last fifteen months. Customer has still faith in the market and showing the confidence in investing as India’s largest Insurance player LIC’s net profit grew by 37 percent in FY 2009 despite the tight economic situation. Corporate advance tax collections were up by 14.7% in September. Total advance tax collections in the second quarter stood at Rs 49,501.80 crore as against Rs 38,367 crore in September, 2008. And, foreign investors are showing more confidence to invest and flow the money into the market. Export signals, gradually increment in the retail sector, sales graph of auto industry showing the positive trend, According to the Society of Indian Automobile Manufacturers (SIAM), domestic auto industry posted the jump of 24 percent sale in August, which anyhow shows the signal of the appetite of the growth of the Indian economy, which can be gradually developed and maintain by looking forward for the investment in the untouched or undeveloped sector.
As per the survey India has a big potential to invest the money in infrastructure, water resources and energy sector. And Indian government has fair projection to invest the big share on these projects in coming decade. However, we have a question that how the government would manage the money for it. There is a investment projection of $ 500 bn in next five years in only in infrastructure industry.
It is a big concern that the inflation is again eating the joy of the common consumers. Prices of the all commodities have risen. And crude oil again has touched $ 71 per barrel, while it was at $ 43 per barrel six months ago. Pulses have already touched historical heights and other food grains also expected to touch same as per the poor weather condition, which would affect the production of principal corp.
We have absolutely different economic scenario as compare to the USA and European countries. Since we have a long way to go in some major and semi developed sector, so the Indian government needs to invest the money on such long term projects, which would not only fetch the larger liquidity in the market but also would be able to fetch big jobs in the country. However, we will have to project ourselves for a decade, as any project takes four to five years to complete, and by the time the project is completed. We again have to be prepared for the further demand for next coming years. For example, we need to maintain the demand of the growing population in terms energy consumption. Peak demand estimation by the end of XI Plan (2007) was 157 GW and by the end of XII Plan (2012) is 213 GW. With a targeted GDP growth rate of 7 to 8 percent, and an estimated energy elasticity of 0.80, the energy requirements of India are expected to grow at 5.6- 6.4 percent per annum over the next few years. This implies a four-fold increase in India’s energy requirement over the next 25 years and India faces significant challenges to meet this. And, undoubtedly, the sector demand billions of rupees and skill man force. India needs big development in infrastructure, energy and water supply. The government would find very hard note to manage the huge budget. As per a study, India would require more then $1.5 trillion to invest on these sectors in next 10 years.
We have a strong social structure, who believes in saving. And we have huge savings in various Indian banks. India's high savings rate has been a crucial driver of its economic boom, providing productive capital and helping to fuel a virtuous cycle of higher growth, higher income and higher savings. Since the 1990s, the gross domestic savings rate has risen steadily from an average of 23% to an estimated high of 35% in the 2006/07 fiscal year (April-March). As real GDP growth climbed and the economy opened up, many worried that increasingly prosperous Indians would spend more and save less, breaking the cultural habits of decades. Those fears turned out to be unfounded; prosperity has only increased the savings rate. One reason for this is the woeful inadequacy of India's social-security system.
All this suggests that India's large fund of household savings, which stood at Rs9.85trn (US$192bn) in 2006/07, will remain available to fuel domestic growth. Therefore government can use some percentage of the savings for the investment in the various projects wisely. However, the government needs to be very cautious while using it, as inflation creates biggest threat on it, which anyhow would hamper the money management for the projects. It’s a fact that any country would find very hard notes, if the inflation continually goes on for a long period of time. Therefore the government needs to pull up his socks to tame the adverse effect of the inflation and larger spectrum can be benefited of the trend of the growth.
Thursday, September 24, 2009
Wednesday, September 9, 2009
Lehman’s era and the state of the Indian Economy
The process of Lehman Brothers Bankruptcy was not a sudden incident, it was the resultant of US subprime and housing bubble. The saga had been begun since 2002, when American banks and credit institution started lending the loans to the sub prime customers profusely, whose financial credentials were economically not sound.
It took almost six years to show the impact like Lehman’s. Since the major banks like Lehman succumbed to the situation such badly that the whole world started impacted. However, some Asian countries like India, China etc, manage to get least bounce as compare to European and American countries because of their own strong economic penetration in the domestic market such as agriculture, large numbers of consumer, infrastructure and traditional banking system, while issuing the credit. Being a part of the globalization, India also could not save itself to get the hit.
Pre Lehman’s collapse, India was heading towards the double digit growth. Post Lehman, which was not only impacted but also started struggling at 6%. To know, that why India too impacted, we need to understand the Indian economy as well, which can be divided into three parts in the context of GDP as Service sector, Agriculture and Industrial & Manufacturing sector, which contributed 55.7%, 26.5% and 17.8% in 2007-08 respectively. As per the department of economic affairs, in 2007-08, India’s GDP growth rate was 9.0%.
There is no doubt that the service sector is the major constituent of the GDP, which has shown tremendous growth in the last decade. IT and ITES, which is the important part of the service sector, contributed 1.2% in GDP in 1998, while it estimated 5.5 % in FY 2008, which shows the growth of 358.33% in a decade. Needless to say that the industry is completely depend on the USA and other European county, which means if aforesaid countries get any negative bounce, India too can not spared of the hit. Post Lehman, India too showed steep decline in the IT sector, Real sector, insurance and export. Associated people with the IT are one of those biggest spenders in the country. Any down turn on the industry affects the same reaction on Real Estate, Retails and consulting.
Therefore we are required to focus on the following domestic business for getting the pace of the growth, which was in the pre Lehman’s era, as infrastructure, hospitalization, agriculture & allied industries, strong monetary policy, fiscal discipline and optimum utilization of the resources.
Though the export demand shrunk in the western market, due to the large consumer based, India could manage the goods in its market. However, we have still need to focus on the export industry as well. We need to make very balancing difference on the excessive dependency and adopting the growth driven model of export. Since export demand in the western markets
squeezed badly, consequently China’s excessive dependence on exports proved to be liability, while our large domestic market proved to be beneficiary for us.
We are the second largest populated country in the world, which is continuously growing rapidly. Consequently we require more foods and grains to fulfill our own domestic demand. Therefore we rigorously need upgraded tools and technology for not only fulfilling the demand but also for export of the agricultural products. Pathetically, the growth rate of the agriculture sector squeezed by 65% in a year dramatically, as it had a growth rate of 4.9% in 2007-08, However, it was 1.7% in 2008-09. Due to the declination of the aforesaid industries in India, it poised the growth of 6.7%.in 2008-09. The average growth rate of principal corps is only 3.17% in India from 1994-95 to 2007-08. As per the Directorate of Economics and statistics (Ministry of Agriculture, India), only 42.9% agricultural area under the principal crop, in the country was irrigated in 2005-06 and 43.9% in 2006-07. It means more then half of the agricultural land is still at large to get the irrigation facility, which requires very urgent reforms to increase the share of the industry in GDP.
Apart from the industrial development, strong fiscal discipline and monetary policy is a must tool for saving the country during the odd times, as the USA had to infuse approximately $700 bn to bailout the several collapsed industries. However, the government needs to focus on the revenue taxes at the good times to overpower the odd financial situation, and allocates it appropriately, as the government has to step in, while private companies get collapsed financially. Though it was a positive sign of the strong monetary policy in country like India, where there is a second largest consumer for the goods and credits. Not even a single bank blinked its financial credentials, while in USA, it swallowed more then 100 banks and credit institutions. Consequently, we have to maintain the reformative balance between traditional and growth driven modern reforms adopted by the central bank of India.
Conclusively, we are the one of the fastest growing economy of the world, and keep one of the largest base of the consumers, are required to play a pivotal role to eradicate the economical imbalance on the international arena. We have to actively raise and participate for the growth driven reforms internationally.
It took almost six years to show the impact like Lehman’s. Since the major banks like Lehman succumbed to the situation such badly that the whole world started impacted. However, some Asian countries like India, China etc, manage to get least bounce as compare to European and American countries because of their own strong economic penetration in the domestic market such as agriculture, large numbers of consumer, infrastructure and traditional banking system, while issuing the credit. Being a part of the globalization, India also could not save itself to get the hit.
Pre Lehman’s collapse, India was heading towards the double digit growth. Post Lehman, which was not only impacted but also started struggling at 6%. To know, that why India too impacted, we need to understand the Indian economy as well, which can be divided into three parts in the context of GDP as Service sector, Agriculture and Industrial & Manufacturing sector, which contributed 55.7%, 26.5% and 17.8% in 2007-08 respectively. As per the department of economic affairs, in 2007-08, India’s GDP growth rate was 9.0%.
There is no doubt that the service sector is the major constituent of the GDP, which has shown tremendous growth in the last decade. IT and ITES, which is the important part of the service sector, contributed 1.2% in GDP in 1998, while it estimated 5.5 % in FY 2008, which shows the growth of 358.33% in a decade. Needless to say that the industry is completely depend on the USA and other European county, which means if aforesaid countries get any negative bounce, India too can not spared of the hit. Post Lehman, India too showed steep decline in the IT sector, Real sector, insurance and export. Associated people with the IT are one of those biggest spenders in the country. Any down turn on the industry affects the same reaction on Real Estate, Retails and consulting.
Therefore we are required to focus on the following domestic business for getting the pace of the growth, which was in the pre Lehman’s era, as infrastructure, hospitalization, agriculture & allied industries, strong monetary policy, fiscal discipline and optimum utilization of the resources.
Though the export demand shrunk in the western market, due to the large consumer based, India could manage the goods in its market. However, we have still need to focus on the export industry as well. We need to make very balancing difference on the excessive dependency and adopting the growth driven model of export. Since export demand in the western markets
squeezed badly, consequently China’s excessive dependence on exports proved to be liability, while our large domestic market proved to be beneficiary for us.
We are the second largest populated country in the world, which is continuously growing rapidly. Consequently we require more foods and grains to fulfill our own domestic demand. Therefore we rigorously need upgraded tools and technology for not only fulfilling the demand but also for export of the agricultural products. Pathetically, the growth rate of the agriculture sector squeezed by 65% in a year dramatically, as it had a growth rate of 4.9% in 2007-08, However, it was 1.7% in 2008-09. Due to the declination of the aforesaid industries in India, it poised the growth of 6.7%.in 2008-09. The average growth rate of principal corps is only 3.17% in India from 1994-95 to 2007-08. As per the Directorate of Economics and statistics (Ministry of Agriculture, India), only 42.9% agricultural area under the principal crop, in the country was irrigated in 2005-06 and 43.9% in 2006-07. It means more then half of the agricultural land is still at large to get the irrigation facility, which requires very urgent reforms to increase the share of the industry in GDP.
Apart from the industrial development, strong fiscal discipline and monetary policy is a must tool for saving the country during the odd times, as the USA had to infuse approximately $700 bn to bailout the several collapsed industries. However, the government needs to focus on the revenue taxes at the good times to overpower the odd financial situation, and allocates it appropriately, as the government has to step in, while private companies get collapsed financially. Though it was a positive sign of the strong monetary policy in country like India, where there is a second largest consumer for the goods and credits. Not even a single bank blinked its financial credentials, while in USA, it swallowed more then 100 banks and credit institutions. Consequently, we have to maintain the reformative balance between traditional and growth driven modern reforms adopted by the central bank of India.
Conclusively, we are the one of the fastest growing economy of the world, and keep one of the largest base of the consumers, are required to play a pivotal role to eradicate the economical imbalance on the international arena. We have to actively raise and participate for the growth driven reforms internationally.
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