Developing Asia To Be Buoyant To The Global Downturn, Says Asian Development Bank.

Developing Economies in the Asian region would be more resilient to the global downturn than was initially thought, the major ADB report says.

Asian Development Bank on Tuesday has published its report on the Asian Region forecasting the economic growth for year 2009 and 2010 at 3.9% and 6.4% respectively. According to the ADB, despite the worsening economic situation, developing Asia is poised to lead the recovery from the worldwide slowdown. Active response from the government and healthy financial system in the region has fuelled the economic growth and insulated the region from the worst economic crisis to certain extent.

India Economy in particular, ADB has raised the growth forecast from 5 per cent to 6 per cent for the year 2009, and 7 per cent for the year 2010. The key drivers for Indian economy to survive is quicker than expected return on capital, huge capital inflows, increase public spending, Industrial production is improving, however the risk of downside in the economy due to weaker exports, weaker agriculture output expectations has been minimized by the way of announcing stimulus packages and monetary policies which has maintained the financial system in working condition, although the agriculture output is expected to revive by the last quarter. According to the ADB, 2010 would be better for the economy as the industrial economies is supposed to be out of recession, thus the exports will likely to turnaround and it will cut the overall trade deficit.

On the inflation side, as the food prices are soaring due to poor output of crops this year, the report suggest that the government will be able to contain the inflation by importing the appropriate amount of foodgrain, however it would create the chaotic situation for the central bank while coming on to the monetary policy review. Higher CPI would influence the RBI’s monetary decision and hence, the revision in interest rates is expected as the VMW had research earlier. Key valid points which has been outlined by the ADB to broader openness for the economic resilience:

1. Reinforce Intra-Regional Trade.
2. Effectively manage financial globalization.
3. Maximizing the benefits from labor mobilization.

 

 

This report is officially published by the ADB and the content used in this post has been taken from the report of Asian Development Bank. VMW is not intended to disseminate this report and has been published on VMW Blog for the information purpose only for the visitors.

(SA) Indian Economy 2009-10 Overview. Development in Economy Subsequent To The Recent Crisis.

High interest rates, inflation rate, trade deficit, fiscal deficit and depreciation of Rupee is expected in the next few months.

 

VMW have researched on the global economy with the projection of contraction in the economy is expected in the first half of the year and will likely to see expansion in some of the economies. Germany and France, the largest and second largest economies of the European Union respectively and Japan, the largest economy of Asia has emerged from the recession after 5 quarters, and the United States is somewhat shy to come out of the recession and is expected to expand by the end of this year. The main drivers which might helped the economy, is the active response by the Government Authorities, in a way of announcing trillions of dollars in stimulus packages. Central banks around the world have poured in billions of dollars into the system to make credit market works and slashed interest rates to almost nil to impede the economy to go into deeper recession. With most of the indicators are now offering the sign of strength, however the wobbling unemployment and unsustainable government support to the economy would hamper the growth process. Amid the bleak environment in the global economy, GDP growth in developing economies are shrugging the outlook of their economic growth. With most of the economies were in melancholy, economies like India and China registered a growth rate of 6.7% and 9% respectively.

The immediate effect of the rebound in the global economy could be seen in the financial markets which have posted the spectacular gains in a short time. Since 2008 fallout, markets in India have been stabilized followed by the unprecedented victory in the recent elections, announcement of stimulus packages, and active response to the crisis by the central bank (RBI) which boosted market sentiment and anticipating greater reforms in the economy. In fact situation at the world level are also improving significantly. US economy in particular has offered strong signs of improvement in its economy and expunging the recession which begun in the last quarter of the year 2007.

In the above Chart, which is showing the India’s IIP, Inflation, Exports and Imports from Apr 2008 to Jun 2009. All trend lines are showing the sign of stability from falling which was started in 2008. Over the last six years, Indian Economy grew at an average rate of 8%, becomes one of the world’s largest economy. In 2007-08, Indian Economy posted a growth rate of 9%, though the economic growth has slumped due to recession in the west for the year 2008-09. Service sector will continue to outnumber the manufacturing sector and account for more than 53% of the total GDP, but still less than the advanced economies. According to the GDP data, IT export is on the rise and outpacing the overall growth of the sector.

Nasty Monsoon: This year’s deficient monsoon probably downgrade the overall economic growth as the Agriculture sector accounts for more than 18% of the total GDP. Uttar Pradesh, Andhra Pradesh, West Bengal, Punjab, and Haryana are the key farming locations of India. Almost scanty monsoon in Uttar Pradesh in particular will make a larger impact on India’s farm sector as the poor harvesting of Rice and Cane hit hard due to poor monsoon. Monsoon below average will make several kind of impact on India and other parts of the world. As India is the second largest producer of Rice and Sugarcane followed by the US and Brazil respectively, the commodity prices will go up, and according to the NYMEX data, the sugar prices soared by 62% since last year due to bad weather in India and the world had been affected by the food price crisis last year due to several reasons including poor harvesting due to drought situation and various other non-farm reasons.

Primarily, capital inflows into India has supported the sharp “V” shape recovery in the BSE’s benchmark index, Sensex. Indian equity markets perked up by more than 90% from its March 2009 lows (See given below figure). Foreign investments, positive growth outlook, consumer confidence, good corporate earnings, better reforms prospect might be a specific reason of overall growth in the financial markets. But, will the rally be sustainable over the next few months as the economy would not be grown as fast as we had expected earlier?

The global financial markets are trading at a reasonable value after sharp fall from the 2007 highs. From the beginning of this year, lot of money has poured into the markets around the world as the investors are optimistic about the economy. Developed economies would take more than two years to recover however the Asian economies will lead the overall economic recovery. Companies around the world has posted better than expected earnings in the last couple of quarters and showing the signs of recovery in their operations, nevertheless the growth in their earnings was ushered by cost cutting measures such as layoff and restructuring of their businesses. In general, their growth would be sustainable once the consumer confidence revives in the developed economies.

Unruly Supply-Side: Over the next few months, we will see the higher inflation due to supply side exertion. Supply side concern may include shortage of food grains, higher stock of money in the system due to spiralling government borrowings will doubtlessly push inflation on the higher side. We will expect the monetary action from Reserve Bank of India (RBI) in response to the microeconomic developments. Over the next few months, perhaps the Interest rates would go up in response to inoculate the economy from the risk of higher inflation and currency depreciation.

Economy in 2009-10: It would be bewilder that when we should expect the veritable recovery in the Indian Economy? Of course the Indian economy is not an exception and will go inline with the global economies. It will take a lot of time to recover however the situation has improved significantly and so far we have seen an extremely rapid movement in the economy. Moreover, the G-20 Summit, Pittsburgh in Sep 2009 will play a crucial role in the overall economic recovery as the global leaders were committed to monitor the situation and decision which were taken in G-20 Summit, London. However, we cannot expect the fresh stimulus packages from the Government Authorities to revive the economy.

Important Notice: VMW Research Team has marked this research as “Superannuated” and the content of this research is no longer in use in today’s economic context. However, certain references and inferences in this research can be use. 

VMW View on Politics: India Needs A Complete Overhaul of its State Level Administration System.

Recent Lok Sabha Polls may have mandated the Stable Government at the Center, however so far India fails to make a stable administration at the State level, which is as important as the stable central  government to the people of India. Govt changes every five years but the problem remains unsolved due to differences.

The uncertainties and the war of words at the state level is the same kind of concern that people of India had faced the unstable government at the center in the mid of 1990s and even many times since the independence. The recent war between the Congress Party and the Bahujan Samaj Party (BSP) has sparked the war in politics just few months after the conclusion of recent elections, which mandated the stable government at the center stage. But does it able to make a stable administration at the state level?

Some of the most disturbed Indian states are Uttar Pradesh, Bihar, Orrisa, Jharkhand, Assam, Manipur, Nagaland and few other states are facing the uncertainties at the ground level with the rising risk of Terrorism, Diseases, Poverty, Starvation and many other state level issues that are still unresolved.

Central Government is incapable of implementing the targets of Five Year Plan or the sectoral reforms due to the clash between the state governments while the state governments are accusing the central government of incapable to fund in the growth of the state. There are lot major issues which cannot be resolved by the central government alone and the fighting between the both level of governments will hinder the growth of the nation. We have noted down some of the most prominent areas of the discussion which draws attention even after the successful election.

Key Challenges

On Agriculture

The weaker monsoon this year will add more pressure on the country’s farmers. The crop productivity this year is expected to fall and the country could face the deficit of the availability of  foodgrain in the coming months. Though the agriculture sector contributes 17% to the Indian GDP, however it employs millions of people to work on. According to the relevent data, more than 70% of the 1.1 billion people is in rural area, in which millions of people are below poverty line and the rest are engaged in the agriculture sector.

Whenever India receives the monsoon lower than the average, many farmers were forced to commit suicide due to financial stress. India has inadequate infrastructure, irrigation infrastructure and services in rural areas which actually makes the life of farmers a netherworld. Financial services are also a major setback for the rural parts of India. Even after the economic openness, farmers are still raising funds through Landlords (popularly known as Zamindar in India) and they forcibly acquire the land incase of non repayment. Severe land regulations such as banning or restrictions on renting land has made tough for the landless farmers to get access to land which actually discouraging the rural investments.

Availability of finances is the another major factor of concern for the farmers. Regional Rural banks – on an average are sitting in a huge loss with the mounting non performing assets (NPA) in their accounts, including no regulatory framework for these banks and high risk involved in transaction to the agriculture sector making them resistant to provide credit facility to the farmers. Even the govt has made an effort to support the rural development, however the inefficient use of public funds and lower accountability by the officials making these efforts dud. Last year, Government of India has waived off the debt availed by the farmers. However it doesn’t help at all as the farmers got the benefits only for a year despite this initiative to reduce the burden, they’re still facing tough situation after the scanty monsoon this year.

 

On Health & Security

Terrorism, hunger, widespread eradicable diseases are common in India which has a way to counter them, however the poor adminitration is making these things possible in the country. According to the International Food Policy Research Institute (IFPRI), India ranks 66 out of 88 countries in the world, in which Madhya Pradesh is the hardest hit state.

India State Hunger Index Map (By IFPRI)

The severity of hunger situation in India is a serious problem and needs an immediate attention from the policymakers. Punjab, Andhra Pradesh, Kerala and Assam are at least in better position than the other states. The major health related issues like the child underweight is almost subsist in all states. This needs the health intervention to all women of reproductive age, pregnant and lactating women and children under the age of two. In many villages, the government controlled medical centers ( or Chikitshalya in Hindi) are running for this purpose, however the shortage of doctors and medical aid in the tribal areas and other remote places is making these medical centers trivial. There is a need for strict supervision of the local administrations in that type places so that the government initiatives will continue to work for them.

Terrorism is the prominent issues to be discussed nowadays. India putting pressure on Pakistan after terror attacks in Mumbai last Nov, to do justice for the victims of Mumbai Attacks and it is in under process and we know it will take number years to complete. Since we can understand, India is still unprepared for the possible terrorist attack (hope, not to happen such things) as the government has not done anything for the security yet. Eastern parts of India witnesses violence everyday by Maoist or Naxals. India should need to preclude these acts immediately.

India’s Agriculture sector has a potential to attract lot of investments however it need lot of measures too to improve that sector. Government of India has taken several initiatives including the recent project of setting up Agriculture Innovation Project in association with the World Bank. The major problems are discussed in brief:

• Availability of Finance by restructuring the Regional Rural Banks (RRB). RRB’s major shareholders are State Bank of India, Punjab National Bank, Oriental Bank of Commerce and other major public sector banks.
• Improving Irrigation infrastructure. India is the country which highly prone to the severe floods and witnesses it every year.
• Needs immediate overhaul of land deal rules. Landless farmers do not have access to the lands due to strict rules on renting or using the farm land in India.  It’ll encourage both landless farmers and even the seasonal farmers.
• Use of higher technology in agriculture sector. Many poor farmers are still using traditional tools for the irrigation purpose.
• There is an urgent need for basic infrastructure in rural areas. This will enhance the
• Access to Government Warehouses for storing the foodgrain. Central Warehouse Corporation is the major player in this. There is a problem of logistics to travel their crop to the warehouse to store them.
• The lower margin in crop business to the farmers is discouraging the investment in India’s agriculture sector.
• Transportation system is not very effective for the transition of crops to Warehouses.

Our intention is not to harm the image of any political party and we are never intended to publish any kind of information that will hurt the people’s sentiment. What we’ve delivered here is to get the attention of the Central Government and the State Government to justify their existence in the center and the administrative level so that they can put some concern into the issues which needs to resolve. The infirmity between the center and the state will hamper the growth of India and the stable central government will be considered as futile as there is no objective for the country and their inhabitants.