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New Delhi
31 July 2009
India says its economy has weathered the economic downturn triggered by last year's global financial crisis, and is showing signs of revival.
Indian Finance Minister Pranab Mukherjee told parliament this week the economic slowdown has halted. He said the economy is expected to grow by 6.7 percent this year.
There is reason for his optimism. Many of the signals about the economy in recent days have been positive, with several large companies turning in better than expected profits for the first three months of the fiscal year.
The biggest cellular telephone company, Bharti Airtel, reported profits of 24 percent, and the leading automobile maker, Tata Motors, posted a surprise profit of nearly 60 percent.
Economist P.K. Choudhury, of the domestic rating agency, ICRA, says companies that depend on domestic demand appear to have weathered the global economic crisis.
"I would say that what was expected, [was] that the first quarter would be much more dismal than what it is now. So in that context, in a relative way, many of them are doing quite well," said Choudhury.
However, sectors that depend on overseas customers, such as India's information technology sector, have not been so lucky. The deep recession in Western countries, from where I.T. companies get lucrative contracts, has hurt most companies, which saw revenues grow much more slowly compared to previous years.
Small export units suffered even more as demand in Western countries for textiles and jewelry dried up.
Other anxieties remain. Below average monsoon rains have cast a shadow on hopes the economic turnaround will be brief. Rains have been patchy in the northern region, which produces much of the country's food, and there are widespread worries that the agriculture sector will be adversely affected, dragging down growth.
But there is growing confidence that Asia's third largest economy will post relatively healthy growth in the coming year. The confidence is reflected in the buoyant share market, with the benchmark Sensex rallying by more than 50 percent since March.
Economist Choudhury says swift interventions by the government when the global economic crisis began to unravel last year has helped stem the decline.
"What happened, government reacted very fast. Whatever action [had] to be taken, at right point of time, grants or subsidies or interest rate reduction, monetary policies, fiscal policies, everything was positively tuned towards an immediate action for recovery," he said.
However, economists warn that it may take at least three years before the country returns to the high growth path of nearly nine percent seen in the years preceding 2008.
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