New Delhi: The chorus of voices which have downgraded India’s growth prospects has gained volume in recent times.
The reasons are well known: higher commodity prices, rising interest rates, slowing investment demand, earnings downgrades and so on.
Is it an economic downturn? That would be a case of crying wolf, say Nomura economists Sonal Varma and Ketaki Sharma. They would rather call it a mid-cycle slowdown and present seven reasons why things aren’t bad as they look.
1) Exports revival: February exports are up 39.6% over a year ago on a 3-month moving average basis. Export order inflows too are rising
2) Robust services sector:
3)Buoyant rural consumption: Varma and Sharma say that the rural populace should spend more because of the 17-30% wage hike under NREGA and higher farm support prices
4)Credit demand. 23% growth year-on-year. They add:
Although the 28.7% y-o-y growth in the provision of credit to large industries may largely reflect a strong increase in credit for working capital (and not fixed investments), it still reflects solid demand in real economy.
5)Decent job market:
6)Expansionary fiscal policy: They believe that the government is unlikely to stick to the budgeted 3% rise in expenses. This is an interesting take on the matter, because it is a negative for most other economists who say that an expansionary fisc could crowd out the private sector
7)Reforms: In their own words: There is still a chance that government decision-making accelerates once state elections in May and a cabinet reshuffle in May/June are completed.
However, good things come only to those who wait. Here’s the kicker:
We expect real GDP growth to slow from 8.2% y-o-y in Q4 2010 to a trough of 7.6% in Q3 2011, before rebounding to 8.1% in Q4 2011 and 8.4% in Q1 2012.