INDIA GROWTH STORY: India’s growth engine gathers greater steam

Saturday, June 27, 2009

India’s growth engine gathers greater steam

FMCG, electricity & coal grow in April; Budget to give a boost

POSITIVE growth numbers in a few key sectors coupled with fresh FII and FDI inflow may place the India story on a faster track. Both the government and industry, which are now betting on non-export driven sectors thanks to the renewed domestic demand, are hopeful that India would be able to tide over the current slowdown faster than anticipated earlier. And a little boost from the forthcoming Budget may make the case even stronger.
    Whereas industrial output surged 1.4% in April, 2009, what has really made the government confident is unexpectedly good numbers in a few sectors of the economy. The growth in food and beverages segment was as high as 21.7% in April as compared to the same month last year. Similarly, FMCG registered 19% rise in April and for electricity, the growth was 7.3%. The growth in the coal sector was 13.2%.
    Explaining the numbers, department of industrial policy and promotion (DIPP) secretary Ajay Shankar told SundayET that the government was hopeful of a faster economic recovery because of very good numbers of some sectors during April. "Even electricity numbers which were so disappointing for earlier months strengthened in April. FMCG and F&B were, however, the two major strengths in industrial output numbers," he said. He added that those numbers coupled with $8.5-bn FDI during the first four months of the calendar year brought fresh hope to the economy. Looking at development as a holistic picture IN FACT, India attracted foreign direct investment (FII) of $5.3 bn during April and May. The positive FII numbers in these months were recorded after the net FII outflow for eight consecutive months.
    Dr Rajiv Kumar, director of Indian Council for Research on International Economic Relations (ICRIER), however, gave a counter-view saying that these good numbers could not be seen in isolation. "A few sectors might have done exceptionally well, but there must be huge negatives in export-dependent sectors such as gems and jewellery and textiles. One needs to look at the picture in a more holistic manner," Mr Kumar said.
    Videocon group chairman Venugopal Dhoot agreed that export-driven sectors were a matter of concern as India had not aggressively bailed out the sector the way China did. He, however, said that two major stimulus packages of the government succeeded in putting money into the pockets of those living in the bottom of the pyramid. "People in rural and semi urban areas are spending heavily, and that's where the growth now is coming from. The sectors which are dependent on domestic consumption are bound to grow better in coming months," he said. He further said the formation of a stable government has also contributed to the level of confidence.
    The real estate sector in India, severely hit by the global economic tsunami, is seeing growth and it could make a comeback much faster than expected. Niranjan Hiranandani, MD of Hiranandani Developers, argued that the resurgence of construction and real estate were imminent which would push growth for other industries as well. He talked about construction sector's potential to create a cascading effect as it would boost demand in sectors such as cement, steel, bricks, aluminium and labour to name a few.
    According to Motilal Oswal, chairman & MD of Motilal Oswal Financial Services, the growth in the manufacturing sector is a good indication of the economic revival but the bigger pie will come from services sector as it constitute about 60% of the GDP. In terms of the market performance, sectors such as FMCG, food & beverages, electricity would continue to do well.
    The World Bank, in a report released a few days ago, projected an 8% growth for India in 2010, ahead of China's projected growth 7.7% thereby forecasting India to be the fastest growing country among all large economies of the world. In fact, the Indian economy had grown by 6.7% in FY09 though the country was also hit by the global economic turmoil.
    (With inputs from Neha Dewan & Anand Rawani)
    shantanu .sharma @timesgroup .com