Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

India is on the Path to Double-Digit Economic Growth

Economics / India Jul 01, 2010 - 07:16 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleJason Simpkins writes: If it's able to control inflation and cut its debt, India could well become the world's most appealing investment opportunity.

Europe is choking on debt and scrambling to salvage its beleaguered currency. The United States is saddled by high unemployment and struggling to preserve its wobbly recovery. Even China - which has had to reign in its stimulus to cool its red-hot property market and curb inflation - may have peaked.


Yet India's gross domestic product (GDP) is shooting sharply higher, and many economists think economic growth in the subcontinent is about surge into the double-digits for the first time ever.

"For the first time it appears entirely within the realm of possibility that India will break into double-digit growth within the next five years," said Indian Finance Minister Pranab Mukherjee. "Our growth is coming not just from government action but from a variety of sectors and stakeholders from all of the economy, including our dynamic private corporate sector."

Indeed, India's economy, which grew at an annual rate of 8.6% in the first three months of the year, has been fuelled by strong domestic demand and exports.

Manufacturing output grew 16.3% in the first quarter, as consumers ramped up purchases. Meanwhile, hotels and transport services expanded by 12.4% and the financial services sector grew by 7.9%.

The momentum carried forward in April, as industrial output registered a double-digit growth rate for the seventh straight month, clocking a spectacular 17.6% increase. Growth in capital goods soared to 72.8% year-over-year and growth in consumer durables reached 37%.

Foreign demand also has boosted India's economy. Exports rose 36% in April and 35% in May, as the country shipped out $33 billion of goods and services in the first two months of the current fiscal year.

"To me, this multiple source growth is a sign of robustness," said Mukherjee.

The Indian government expects the economy to expand by 8.5% in 2010, and the International Monetary Fund (IMF) predicts 8.8% growth for the subcontinent.

But as stellar as that expansion would be, Mukherjee insists the government won't be satisfied until overall growth reaches double-digits.

"The 10% growth is a bare requirement for the government to be able to provide food, jobs, education, nutrition, and security to 100-core plus citizens," he said.

Still, Mukherjee and the rest of India's policymakers don't expect to reach that level of growth until 2013. Before then, the government must rein in the government spending that helped the country through the global downturn and tame inflation.

India's Growth Challenges
Indeed, despite India's strong first-half showing, a high budget deficit and rising inflation pose a considerable threat the country's economic growth.

While the central-government-budget deficit appears tolerable at 8% of GDP, provincial governments also run budget deficits - in amounts equal to an additional 4%-5% of GDP. That gives India a consolidated budget deficit of 12%-13% of GDP, meaning its fiscal position is on par with that of Greece, Britain and Ireland.

However, India's saving grace may be the fact that its public debt level is relatively low at around 60% of GDP. A large portion of that is domestically held, as well, primarily in the banking system, which is largely state controlled.

Indian Prime Minister Manmohan Singh says a medium term plan to halve the fiscal deficit by 2013-14 is in the works and that growth isn't expected to suffer as a result.

"We are giving a strong push to investment in infrastructure, relying on private public partnership as much as possible to reduce the burden on scarce public resources," said Singh. "We expect to grow by 8.5% in 2010-11 and we hope to go back to 9% in 2011-12. This is an ambitious goal and we recognize that we have much to do to achieve it."

India's infrastructure sector has doubled over the last five years, from 4% of GDP to 8%, according to the country's Planning Commission. The government currently is offering investment opportunities in the infrastructure sector that are worth more than $850 billion, according to Mukherjee.

As a result, India's six core infrastructure industries - crude oil production, petroleum refinery production, coal production, cement production, finished steel production, and electricity generation - grew by 5% in May after growing by 5.4% in April.

Long-term, India is looking to invest $1 trillion in infrastructure over the next seven years.

However, the plan for controlling inflation is less clear.

India's wholesale price index, the primary inflation gauge for the country, rose 10.2% in May alone. Food prices in particular have seen a spike. They were up 0.7% in the week ended June 12 from the previous seven days, and 16.9% from a year earlier.

The government also has deregulated gasoline prices and raised the cost of diesel and cooking fuel, which could push June headline inflation above 11%.

The country's current-account deficit, which widened to a record $13 billion in the first quarter, couldweaken the rupee further. The currency already is the worst performer in Asia this quarter after the Korean won.

The Reserve Bank of India (RBI) started raising interest rates in March to combat the decline, and some analysts had speculated that the central bank would announce another increase before its next scheduled meeting on July 27. However, a liquidity crunch in the country's banking sector has made that unlikely.

RBI Deputy Governor Subir Gokarn said Tuesday that a rise in interest rates would do little to stem surging food prices anyway.

"There is a very significant structural driver to food prices, and the policy approach to that is not going to be confined to the working or capacity of monetary policy," he told The Wall Street Journal.

Meanwhile, Finance Minister Mukherjee said the inflationary effect of the recent hike in fuel prices would not last long and be brought under control before the end of the month.

"There will be some impact (on inflation) in the short-term, but it will be absorbed in the course of time," he said.

The direct impact of a fuel price hike on inflation would be an increase of about 0.9%, Mukherjee said, citing his chief economic adviser, Kaushik Basu.

"Though the immediate impact of this policy will be to increase inflation, in six to nine months, we will have lower prices than what would have happened in the absence of this much-needed reform," said Basu.

Prime Minister Singh is optimistic that inflation will be cut in half to 5-6% by the end of the year.

Investing in India
Regardless of the ongoing battles against inflation and debt, India is one of the most dynamic economies in the world. If the global recovery stalls, it will suffer a less severe impact than most developed countries, and it will outperform if the recovery continues.

If you're looking to capitalize on India's infrastructure build-out, you might look at Sterlite Industries (NYSE ADR: SLT), which is a non-ferrous metals and mining company. Its aluminum and copper operations have the company positioned to take advantage of any rise in metals prices, as well as rising energy demand in India.

Tata Motors Ltd. (NYSE ADR: TTM), the country's largest truck-maker and creator of the $1,000 Nano, could also benefit from India's infrastructure expansion.

More adventurous traders seeking to profit from India's currency fluctuations might consider the Morgan Stanley Market Vectors Indian Rupee/USD ETN (NYSE: INR). This fund offers exposure to India's currency by tracking the exchange rate of the U.S. dollar against the Indian rupee. INR rose gradually throughout the spring before plunging in May. It could slide further in the short-term if policymakers continue to abstain from interest rate hikes and inflation soars. But in the long-term, the rupee and the index will likely realize gains as the RBI caves to inflationary pressures.

At the very least, consider the WisdomTree India Earnings Fund (NYSE: EPI) and the iShares S&P India Nifty Fifty Index Fund (Nasdaq: INDY). The former tracks the WisdomTree India Earnings Index, a fundamentally weighted index that measures the performance of companies incorporated in India that are eligible to be purchased by foreign investors. Unlike most equity ETFs, EPI doesn't track a market cap-weighted index, instead replicating the performance of a benchmark that weights holdings by earnings. Its main focus is on industrial materials (32%) and financials (23%).

INDY follows the S&P CNX Nifty Index, a benchmark that measures the performance of 50 large cap Indian stocks. It also is weighted towards industrial materials and financials, but unlike EPI, INDY does not venture away from large cap holdings.

Source : http://moneymorning.com/2010/07/01/india/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules