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.

A man talks on his cell phone past the electronic stock board of a securities firm in Tokyo, Japan, Friday, Aug. 14, 2009. Japan's Nikkei 225 stock average rose 80.14 points, or 0.8 percent, at 10,597.33, the highest close since Oct. 3. (AP Photo/Itsuo Inouye)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.

India Budget 2009 Review. Market Expectations Despaired.

 

 

GDP Growth

IIP Data

Budget for an Inclusive Growth

Much awaited Budget mainly for reforms, hike in FDI limit financial industry, deliverance of an inclusive growth in the ecocomy were finally delivered by the Finance Minister of India, Pranab Mukherjee. Some of us were very happy with the proposals made in the House while other got disappointment on various front. For sure, India’s economic growth has been impacted by the global economic problems and the recovery in the western economy specially in the US would play a critical role in a growth of the Indian economy. The rising fiscal deficit, expenditures are not only a single major concern for the economy but the significant rise in government borrowings also does matter for the future growth, which would affect the borrowing cost (refer to the given below figure).

India's Fiscal Deficit for FY 2008-09 of Annual GDP at Current Market Price.

India's Fiscal Deficit for FY 2008-09 of Annual GDP at Current Market Price.

 

There is no doubt that the debt level of the Indian Government likely to puff up due to higher spending. First look at the brief synopsis of Budget 2009.

  • Mr Finance Minister has agreed upon the real challenges to get back to sustainable 9% GDP growth.
  • Finance Minister stressed upon infrastructure development by providing long term financial assitance to infrastruture projects via India Infrastruture Finance Company Ltd (IIFCL).
  • Increases allocations for National Highway and Railways projects.
  • Extension of repayment period from Jun 2009 to Dec 2009 under the Debt relief Program 2008 to the farmers having acquired land more than two hectares.
  • Gov’t of India commitment on restoring growth in export sector.
  • To Initiate Institutional Reform measures from this year to fix the rising Fiscal Deficit.
  • To allocate Rs 39,400 crores ($8.16 Billion) to National Rural Employment Guarantee Scheme (NREGS).
  • Total expenditure of Rs. 1,020,838 Crores ($209.62 Billion) according to the Budget Estimates 2009-10.
  • Abolishment of Fringe Benefit Tax (FBT) and removal of Surcharge on Income Tax.
  • Changes in Direct Tax Code.
  • Implementation of Goods and Service Tax (GST) from 1st Apr 2010.
  • Revision in Minimum Alternate Tax (MAT) from 10% to 15%.

Since the inflation is no longer a concern for the economic growth, India needs to opt for a better policies and reforms to achieve the macroeconomic stability. Interest rates become more stable backed by the comfortable liquidity situation in the system which would be prudent for the constant growth of the economy and to be self reliant driven by the domestic demand. Forasmuch, India seeing the higher non plan spendings due to Subsidy burden, Sixth Central Pay Commission, and food subsidy which would be a troublesome for the government to restructure its finances. Savings rate at 59% of the anual GDP and massive foreign reserves assets will put the Indian ecconomy on reposeful position in the global arena (helps the Indian economy to abstain from the risk of revision in credit rating).

Finance Minister Mukherjee has commended the budget without giving further stress on the spending and even didn’t touch the revenue side largely in the wake of the macroeconomic health. Foreign Inflows will continue to drive the Indian economy higher in future but the lower exports will make the Balance of Payments (BOP) uneasy for the economy. The vast current account deficit will make the Indian currency more vulnerable in the near term against the US Dollar however it would be a short term pain and not a major concern to think upon. We’re expecting some bit of reduction in fiscal deficit in FY2009-10 due to diminution in subsidy burden including Oil bonds, food subsidy and we could see the beginning of economic reforms in the fiscal year 2009-10 Budget.

We would discuss more in our next report “Indian Economy in 2009-10 Overview”