Slow growth with high Inflation: How Indian economy fared in 2011

NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.

Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.

The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012.

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.

Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).

In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September.

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.

The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.

"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.

In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.
"This is worrisome. Companies are not investing in new machinery equipment. The government is not in a position to spend to push growth because of the problems of fiscal deficit," said Sanjeev Krishan, executive director at PricewaterhouseCoopers (PwC).

In a bid to curb inflation, the Reserve Bank of India has hiked key policy rates 13 times since the beginning of 2010. It made the cost of capital expensive, hitting industrial and overall economic growth.

In fact, India's annual rate of inflation based on wholesale prices remained in double-digit levels almost throughout the year. The headline inflation finally dropped to 9.1 percent only in November.

But to the relief of policy-makers and the public at large, food inflation declined sharply and even fell to a four-year low of 1.81 percent for the week ended Dec 10.

The falling value of the Indian rupee was another matter of concern. It has weakened almost 16 percent against the US dollar since the beginning of the year, the worst performance among the Asian currencies.

The partially-convertible rupee got battered in the last two months, hitting a record low of 54.30 against a dollar Dec 15 -- almost 24 percent down from the year's high of 43.85 recorded July 27.

Looking ahead, the medium-term prospect does not appear that rosy, going by the forecast made by the Reserve Bank of India. "While inflation remains on its projected trajectory, downside risks to growth have clearly increased," the bank said

EU asks India to help bring Iran to nuclear talks

New Delhi: The European Union wants India to draw Iran into talks over its nuclear programme but said strong sanctions are also needed, European Council President Herman Van Rompuy said on Friday, as Asia's third-largest economy aims to increase trade with Tehran.

India has struck a defiant tone over new financial sanctions imposed by the United States and European Union to punish Iran for the nuclear programme, seeking to increase trade and barter arrangements to pay for oil supplies.

Van Rompuy said India and the European Union disagreed on the issue of sanctions, but that both wanted talks to resume on the nuclear issue.


"On the position of Iran, we have at least one common line that is we have to find a solution by diplomatic means. We have to negotiate on Iran's nuclear programme," Van Rompuy said after a trade summit in New Delhi where he called on India to use its strong economic ties to draw Tehran into talks.

"In order to acheve that result, you need more pressure on Iran, more sanctions on Iran," he said.

As well as deep historical ties, India and Iran have shared interests that include the stability of Afghanistan as Western powers draw down their troops. India is now Iran's main oil customer, even though it has diversified imports lately because of the payments problems thrown up by new sanctions.

At an earlier news conference, Prime Minister Manmohan Singh said the nuclear issue needs to be resolved through diplomacy and defended buying Iran's oil.

"Iran is a close neighbour. It is an important source for our energy," he said.

"There are problems with Iran nuclear programme. We sincerely believe that this issue can be and should be resolved by giving maximum scope to diplomacy," Singh said.

On the eve of the summit, India's trade secretary, Rahul Khullar, said there was no reason why India should not take advantage of business opportunities arising as European companies reduce sales to Iran.

Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food as the new sanctions kick in, hurting its ability to import basic staples for its 74 million people.

A large delegation of Indian businessmen is heading to Tehran in the next few weeks to explore new trade opportunities. India observes UN sanctions but was still free to trade a vast range of products with Iran, Khullar said.

Reuters surveys of commodities traders around the globe show that since the start of the year, Iran has had trouble securing imports of basic staples like rice, cooking oil, animal feed and tea. Grain ships have been held at its ports, refusing to unload until payment can be received for cargo.

Difficulty paying for urgent import needs has contributed to sharp rises in the prices of basic foodstuffs, causing hardship for Iranians with just weeks to go before an election seen as a referendum on President Mahmoud Ahmadinejad's economic policies.

'Substantial progress'

Van Rompuy also said India and the EU have made "substantial progress" towards concluding a deal that would create one of the world's largest free trade areas.

European Commission President Jose Manuel Barroso said a deal could be struck by autumn of 2012.

The EU has been negotiating such a deal with India since 2007 but the talks have snagged on issues such as slashing import tariffs on European cars, and easing visa regulations for Indian professionals.

Singh, speaking alongside Van Rompuy at the news conference, said he hoped the deal would be concluded at the "very earliest

an overview

India is a South Asian country that is the seventh largest in area and has the second largest population in the world. India covers an area of 3,287,240 square km (India geography) and its population stands at 1.215 billion people in 2010 (India population) . India has great plains, long coastlines and majestic mountains. Thus, the land has abundant resources. India shares its borders with China, Bangladesh, Pakistan, Nepal, Sri Lanka and Myanmar.
Understanding the Indian Economy

Large, dynamic and steadily expanding, the Indian economy is characterized by a huge workforce operating in many new sectors of opportunity.



The Indian economy is one of the fastest growing economies and is the 12th largest in terms of the market exchange rate at $1,430.02 billion (2010 India GDP). In terms of purchasing power parity, the Indian economy ranks the fourth largest in the world. However, poverty still remains a major concern besides disparity in income.

The Indian economy has been propelled by the liberalization policies that have been instrumental in boosting demand as well as trade volume. The growth rate has averaged around 7% since 1997 and India was able to keep its economy growing at a healthy rate even during the 2007-2009 recession, managing a 9.668 % growth rate in 2010 (India GDP Growth). The biggest boon to the economy has come in the shape of outsourcing. Its English speaking population has been instrumental in making India a preferred destination for information technology products as well as business process outsourcing.



The economy of India is as diverse as it is large, with a number of major sectors including manufacturing industries, agriculture, textiles and handicrafts, and services. Agriculture is a major component of the Indian economy, as over 66% of the Indian population earns its livelihood from this area.

However, the service sector is greatly expanding and has started to assume an increasingly important role. The fact that the Indian speaking population in India is growing by the day means that India has become a hub of outsourcing activities for some of the major economies of the world including the United Kingdom and the United States. Outsourcing to India has been primarily in the areas of technical support and customer services.

Other areas where India is expected to make progress include manufacturing, construction of ships, pharmaceuticals, aviation, biotechnology, tourism, nanotechnology, retailing and telecommunications. Growth rates in these sectors are expected to increase dramatically.

Despite the liberalization the economy still largely controlled by the government and the 500+ major companies it owns, which together are worth around US$500 billion, or around 40% of GDP at current exchange rates. Thanks to past profligate spending, government debt is running at around 80% of GDP. Servicing the interest payments on that debt is now the single largest component of the federal budget. Fiscal discipline and deficit reduction is therefore vital for India's future prospects.

It is also crucial to understand that India is driven primarily by domestic (consumer) consumption. This stands in marked contrast to Japan, the Asian Tigers and now China, all of whom have followed the export-oriented model.

With the massive growth of the Indian middle class, this vast country may become Asia's first major 'buy' economy.

India still a foreign investment hot spot: Ernst & Young

MUMBAI: Foreign direct investment in India is set to swell in coming years as investors stomach a lack of transparency, poor infrastructure and policy paralysis in their search for growth, professional services firm Ernst & Young (E&Y) said in a report.

Overseas investment in Asia's third-largest economy rose for the first time in three years in 2011, the report noted, as global investors put their faith in rising salaries, an expanding middle-class and a large and cheap labour force.

'The fundamentals that make India attractive to investors remain intact,' Farokh T. Balsara, head of markets at Ernst & Young India, wrote in the report released on Sunday.

'However, our respondents continue to cite inadequate infrastructure and a lack of governance and transparency as major obstacles to investment.'

Foreign direct investment (FDI) in India rose 13 percent to $50.81 billion in the first 11 months of 2011 from a year earlier, while the total number of projects rose 25 percent to 864, the report said, citing data from the Financial Times' FDI Intelligence service.

Business confidence in India has declined over the past year, as economic growth slowed from an annual rate of 8.5 percent in 2010/11 to about 7 pe rcent, and corruption and policy paralysis discouraged investment in big projects.

Just over half of chief executives in India are still 'very confident' of revenue growth in the next 12 months, down from 88 percent a year ago, according to a recent survey by PricewaterhouseCoopers.

The majority of companies surveyed by E&Y were confident in the long-term prospects for investment in India, given sluggish growth in the United States and debt problems in Europe.

Almost 70 percent of 382 international companies surveyed said they plan to increase or maintain their operations in India, said the report, which was prepared for the World Economic Forum gathering in Davos, Switzerland.

Just 19 percent said they had no plans to enter the country or were preparing to withdraw.

Robust domestic demand, cost competitiveness and a cheap, ever-growing labour force were cited India's key benefits.

'Although the ongoing global uncertainty...(has) prompted some discomfort among global investors to make long-term commitments, India's inherent advantages and its proven resilience to counter macroeconomic challenges far outweigh these concerns,' Balsara said.

Automakers led the way in investing in India last year, boosting spending by 46 percent, E&Y said.

Technology and life sciences companies were other big spenders, while spending by foreign companies on infrastructure and retail projects declined.

Ford Motor Co, which said this month it would spend $142 million on its Indian operations, and the Renault-Nissan alliance are among companies that are stepping up investment in India.

Other companies, particularly retailers, are not so sure.

Sweden's IKEA, the world's biggest furniture retailer, said this week that would be difficult to set up shop in India because of complex government sourcing rules announced this month.

Plans by companies such as Wal-Mart were set back in December when the government, under pressure from political allies, abandoned a long-mooted policy to open up the supermarket sector to direct investment by foreign companies.