Not all doom and gloom for India's economy
2011-12-21 16:16:18
It has been a gloomy year for the Indian economy. Both the benchmark stock index and the rupee touched record lows, putting India among the worst performing markets in Asia.
Economic growth is hovering around seven percent, the lowest in two years. And some have said that growth will moderate in 2012, which GDP forecast to expand by 6.5 percent.
India's exposure to European markets is seen as one key reason for the negative sentiment.
Prabhu Guptara, former executive director of UBS Switzerland, said: "It depends on the way the global economy is growing. If the global economy really collapses, which unfortunately is still possible, then of course we'll be badly hit. Our growth rate will be hit even as inflation will come down, but the balance will not be good.
"On the other hand, if the global economy stabilises and grows slowly, that actually will be the best scenario for us because global stability is what suits India best."
But some economists said there could also be something to cheer about in the gloom. The central bank's monetary tightening cycle has reached its peak and interest rates are set to go down next year. That could help breathe some life into the sluggish economy, by reviving investment.
More importantly, it will also spur domestic spending, which accounts for over 60 percent of India's economic activity.
Mr Guptara said: "The basic structure of our economy is different from the basic structure of many other economies around us which are export-oriented. As a result of which, because world trade is flat, other countries are being hit more than our country."
Another ray of hope is that in 2011, with the global uncertainty, India's economy has been pushed in such a tight spot that the government may have little choice but to introduce reforms.
Recent weakness in stocks and the rupee is already putting pressure on the government to move.
Although its bill on foreign investment in the retail sector was shot down by the opposition parties, it is looking at other ways to shore up revenue by bringing reforms in taxation and opening up foreign investment in the pension and insurance sectors.
Some important bills are being tabled in the parliament this week. If they are cleared, they could lift the stock market, which is currently in a bear phase. Even as investors are cautious analysts said this is a good time to buy.