India: A Bright Spot Amidst The Global Recession?
Nouriel Roubini, of the infamous (and silly) Dr Doom moniker, says India might just do OK.
Despite slowing from highs of 8% to 9% growth, India’s economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two-thirds) and income (one-half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets….link
Given Roubini’s track record over the last three years, he’s certainly built some cred. Do you agree with his assessment on India, though?
On the other hand, the fiscal house is in terrible shape. Just because domestic banks are state controlled does not mean they have low NPAs–often, they keep on reassigning credit to bad borrowers to preserve the illusion.
Growth rates in the future are also murky. Times were good for the last several years, coasting on good monsoons, tough decisions made by politicians in the past, and a very favorable global climate. Now, global demand has fallen, US/Europe are set to balance away from consumption for some time, and the government has not only produced no major reforms in the last five years, but seems unlikely to produce major reforms in the next five as well.
So relative to the rest of the world, yes India will probably do better. But it also seems unlikely to match the record of the last few years, unless serious steps are taken to curb the deficit, promote infrastructure and human capital, and usher in serious economic reforms.
I would also be skeptical about giving Roubini ‘cred.’ His predictions were not timely (many years early) and were primarily about the wrong channel (current accounts, collapsing dollar). He was correct not because he has access to some magic ball or technique; he was lucky. He just guessed in one direction, and there is no reason to believe his analysis was any more or less accurate than other predictions in the noisy environment of economic predictions.
Comment by Thorfinn — August 16, 2009 @ 1:59 pm
[...] Nach Indien und deren Wirtschaftsthemen [...]
Pingback by Über den Tellerrand blicken …. | Spirofrog Blog — August 24, 2009 @ 11:06 pm
i found this information very interesting and useful for my project
Comment by varsha — August 25, 2009 @ 3:54 pm
Indian Economy has sustained itself inspite of global recession. This is because of doemstic savings and corporate earnings which are fiancning investments. There is low export dependence, a large consummption based and high employment which has helped sustained consumption. Banks also have sustained themselves inspite of global recession. I agree with this article.
Dr.Samuel
Comment by Dr.Samuel — August 25, 2009 @ 4:00 pm
I agree there are defcits, but the total deficit is not as huge like in the US – in the US the total deficit is estimated at 65 trillion – including medicare, social security etc. etc. not including the deficit created by the states. (article by Jerome R. Corsi
© 2009 WorldNetDaily )
The savings rate in India is around 35% and the demand is consumer driven not state driven unlike China. RBI rules are strict and banks have shown great amount of prudence, The banks are not state controlled, on the contrary they do not always heed RBI’s recommendations. I am certain that with political stability, reforms will come in steps & not in one large step – prudence is the answer.
Comment by Satish J — September 3, 2009 @ 8:58 pm
Good post, India will be out of the woods soon if the rain fall in September is O.K., then there is an even chance for economy to clock a 6.25% GDP growth rate. I think this is one of the best growth rate in the current world economy.
But the growth should be in real terms, I was writing that the inherent strength of the Indian economy is rock solid, thanks to our demography 55% ( Less than 25 Yrs of Age) even in US $ 740 Per capita we can rough it out, we don’t wait for Govt dolls, The Micro entrepreneur and ready to face the challenge of the Indian mass has really made our economy a resilient economy.
2011 will the real time CHINDIA is tomorrow’s market, you can not dream with out this Chindia.
Thanks the Cong has got absolute majority and no irritabnts are there, so the next reforms can be made in a proper manner.The world economy will have a roller coaster ride, but by 2020, Indian economy will shipshape, there are some hick ups and cough and cold which are very common.
One important characteristics of the Indian economy it’s in G-20 as well as G-33, India is in between. I think no countries in the world. are in both the group.
With Warm Regards
Comment by Debashish Brahma — September 7, 2009 @ 8:04 pm
There are certainly some big issues facing the Indian economy. From the short-term issue of droughts to the longer-term issue of dependence on foreign oil and fiscal deficits to the omnipresent political inefficiencies. That said, 6% growth on a $1.2 trillion economy certainly helps (even though a little bit) to make up for the slowdown in the developed countries. Combine that with the growth in China and Brazil – and the emerging economies could really be starting to make up for the slowdown elsewhere. Certainly something to be proud of as an Indian!!!
However, in my opinion there are severe short-term risks from the US dollar. At the end of the day – the service sector is the largest component for Indian GDP and Indian software firms get up to 60% of their revenue from the United States. If Indian firms are not able to counteract meaningful decline in the US dollar with efficiency gains internally, that could have a material impact on the whole growth story.
Comment by Chaitan Kansal — September 8, 2009 @ 4:13 am
By the way, agree on the comments made by Thorfinn earlier about Mr Roubini. Economists (perhaps like investment bankers) don’t seem to have a sense of accountability when it comes to missing the boat on the entire global economic crisis. In recent words of Paul Krugman himself, “the past 30 years of macroeconomics was spectacularly useless at best, and positively harmful at worst”. This Roubini guy has been making noises about the doomsday scenarios for quite some time. The only thing I will give him credit for is his business acumen and the way in which he has been able to capitalize on the downturn. This guy and his company RGE Monitor must be doing very good business these days…
Comment by Chaitan Kansal — September 8, 2009 @ 4:21 am
While I agree with Roubini on his numbers, we should at the same time not forget that any growth of less that atleast 8% is not helping India achieve its basic dreams. And this year, with the monsoons failing, the rural population, who kept up the consumer-demand even during this recession, are going to cut back on consumption, which will further hurt the economy. And I am not sure what kind of programs the Govt is going to come up with to help the farmers and these programs might increase our budget deficit further.
Unless the Govt comes with some strong economic reforms – like opening some markets further and improving the infra-structure, I doubt any economic numbers we see will help India in the long-term. And with the inflation already expected to go up in the coming months, I am not sure whether we would have a sustained monetary-easing and fiscal measures till we actually come to a steady sustainable growth.
Comment by JuniorEconomist — September 12, 2009 @ 9:39 am
I think India is not just on the forefront of combatting recession trends, it will be a catalyst in reviving the markets and propelling the global economy forward. In this regard, I read an interesting piece recently in the Business Standard ‘ The Strategist’ on Religare and its ambitious plans to define global finance by being one of the top 5 players worldwide. I wonder if they will be the Indian face of global finance!
Comment by Shagorika Heryani — December 23, 2009 @ 7:37 pm
IRCON International Crooks at Work
Sources in Malaysia and IRCON itself says….a huge sum of money was paid to MD Mohan Tiwari by An Australian Signaling Company to clinch a package in the Malaysia Double Track project.
Comment by Rakesh — February 9, 2010 @ 5:21 am
what will be the GDP in real terms?
Comment by guest — February 9, 2010 @ 10:54 am