21.1.09

The India Story - Chapter 2009


India will be the second fastest growing economy in the world after China, Goldman Sachs, the American financial services major has said. Goldman Sachs expects India’s economy to grow 5.8% in FY 2010 due to fall in external demand and a slowdown in investments. The US, EU and Japan are likely to experience a significant contraction in economic activity in 2009 and possibly in 2010. Significantly, Prime Minister Manmohan Singh too had expressed a cautious note on the outlook for the economy .However, the CEO of the largest private bank in the country, ICICI Bank, is more optimistic. Mr KV Kamath predicted at the same event that the economy will clock a growth of around 7% for FY ’10. Tushar Poddar of the Asia Research Team, said. “India will be the second fastest growing major economy in the world after China. However, due to rapidly falling exports and slowing investments, we have maintained an under-weight on the Indian stock market.” He further said, “Four important themes — spending by the rural consumer, government spending, low inflation and low-cost housing — are identified as themes which the investor can play for downside protection in 2009.” He said, the rural consumer demand is largely unaffected by the global crisis since rural India has not borrowed much. Besides, agriculture has done relatively well and the government has assisted the rural population through schemes like waiver of agricultural loans and National Rural Employment Guarantee Scheme (NREGS) which provides every rural family with paid employment. Low inflation is also going to translate into a lower import bill and low input cost. “In an environment of rapidly falling input costs, sectors which have a high proportion of variable cost compared to fixed cost are likely to benefit from falling input prices,” the report said. Higher government expenditure on account of tension with Pakistan and coming general election is also expected to spur demand. Also, the sixth pay commission payouts and implementation of NREGS will also add to the consumption demand in the economy. As for low cost housing, the report notes: “With a supply shortfall of over 30 million units, continued demand growth due to favourable demographics and urbanisation, and more immediately, falling construction costs along with massive fiscal and monetary incentives suggest to us that low-cost housing is an opportunity whose time has come.”

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