India Looks Ahead to Economic Recovery

By Anjana Pasricha
New Delhi
01 May 2009

In India, optimism is growing about the prospect of an economic recovery following a slowdown triggered by the global financial crisis.

The tone is still cautious, but six months after the Indian economy registered a sharp slowdown, Indian industry says the worst may be over.

Most industries expect revival

Anjan Roy is an economist at the Federation of Indian Chambers of Commerce and Industry. He says a recent business confidence survey shows that most industries expect to see a revival toward the end of the year.

"Maybe now is a phase of bottoming out of the slowdown in India, and even if we don't see an immediate upsurge the drifting down will stop, and in sometime maybe we can see some improvement," he said.

India was less affected than many other emerging economies by the global economic crisis. But Asia's third largest economy, which had been growing at over nine percent, saw growth slip to an estimated 6.5 percent in the last fiscal year. Manufacturing and exports took a hit, consumer spending slowed sharply, and jobs were lost.

Stimulus packages making impact

However three stimulus packages, cuts in interest rates and taxes, and higher spending on infrastructure by the government are beginning to make an impact. 

People look at a Tata Motors?Nano car displayed at showroom in Mumbai, 01 Apr 2009

Economists say sectors such as steel, automobiles and cement - a key gauge of economic health - are already faring better than expected. India is one of the few countries in the word where steel consumption is rising. Demand for trucks and buses has begun to climb. Sale of consumer goods in rural India, where two thirds of the country live, has continued to grow, and a good monsoon could fuel more spending.

Stock markets are already reflecting the optimism. India's benchmark Sensex share index is at a six-month high, and has gained nearly 40 percent since March.

Government officials have said recently that India will be among the first countries to rebound from the global crisis. They say this is partly because India's economy is not as dependent on exports as many other Asian countries, and is driven largely by domestic demand.

Slower recovery for export industries

However, economist Anjan Roy says it may still take time for export related industries to turn the corner.

"One cannot expect that the export sectors can improve very radically because that will depend to a very large extent on the recovery of the international markets. Export sector will remain sluggish. That is a major challenge," Roy said.

There are other concerns. Analysts caution that the emergence of a weak coalition government after general elections, which end in mid-May, will dampen confidence and could slow down the prospect of an early economic recovery.