New Delhi: India’s economy may lose a bit of steam in coming months but will remain on track for strong growth despite global market turmoil and mounting fears of a US recession, analysts say.
The Asian giant’s expansion will remain far above anaemic growth in the West thanks to high savings and investment rates and strong domestic demand driven by its 1.1-billion-strong population, experts say.
“The economy has sufficient internal ballast so it won’t be blown off course but it will lose some momentum,” said Goldman Sachs economist Tushar Poddar.
While the World Bank forecasts average global growth for this year at a high of 3.3%, an Indian government advisory panel last week predicted 8.9% growth for this financial year to March 2008, slowing to 8.5% the following year.
Last year, India’s economy grew by 9.4%, second only to China’s scorching expansion for 2007 forecast at around 11.7%.
“The structural growth story remains intact and opportunities to invest in one of the more dynamic economies will remain plentiful,” said Poddar.
Abheek Barua, the chief economist at India’s HDFC Bank, agreed, telling AFP: “There’s underlying traction in the Indian economy.”
Despite overall confidence in India’s economic prospects, nerves have been frayed this week by the turmoil on global stock markets.
Mumbai’s benchmark 30-share Sensex index, which soared a record 47% last year as foreign investors were lured by India’s blistering economic growth, has fallen nearly 20% in the past seven trading sessions.
But analysts said they expected the market to stabilise soon.
“Already some long-term funds are picking up front line stocks,” said Amitabh Chakraborty, equities president at Mumbai’s Religare Securities.
“There’s no reason at all to allow the worries of the Western world to overwhelm us,” Finance Minister P. Chidambaram said Tuesday, urging investors not to panic.
“Our economy is very different from some economies of developed countries. Our economy is a strong economy and the corporate sector is very strong,” the minister said.
Analysts nonetheless expect a sharp deceleration in key exports such as auto parts, textiles, software and other services due to the global growth slowdown and a 12% rise in the rupee against the dollar in the past year.
But on the brighter side, India’s exports represent just 17% of GDP compared to the Asian average -- excluding Japan -- of over 40%, and domestic demand plays a far higher role in supporting growth, Poddar said.
Spending to improve India’s dilapidated infrastructure will help buttress the economy, economists say.
Also, while the rupee is expected to rise even more, a growing current account deficit due to record oil prices will help moderate that increase as India must convert its currency into dollars to pay the import bills.
Most private economists project growth for this year of 8.5% to 9%. Some predict growth as low as seven percent next year as the effects of aggressive monetary tightening to tame inflation are felt.
The central bank, which has raised interest rates nine times since 2004, now is hinting it could ease its hawkish stance, saying it will “pay considerable attention” to global financial uncertainties.
“In the long run, the Indian market should certainly reflect the underlying strengths of the Indian economy,” said economist Amit Mitra, the director general of the Federation of Indian Chambers of Commerce and Industry.