India Inc. rings warning bells for slowdown: Assocham

India Inc. rings warning bells for slowdown: Assocham

New Delhi: With external trade in merchandize and services accounting for 45% of the Indian economy, the US financial crisis will have a significant impact on emerging market economies, including India and China which will find it difficult to insulate themselves from the global slowdown.

This was part of the findings that emerged from the Assocham Business Barometer poll that was carried out amongst 319 CEOs and CMDs between mid-August and early September.

Key Findings

* 86% CEOs did not agree with the premise that growth in Indian economy is largely domestic driven

* 45% of India’s GDP comprises foreign trade including merchandize and services; external sector has been growing at an average rate of 30% over the last four years

* 60% of India’s exports go to US, Europe, China and Japan which have largely seen export- led growth, mostly influenced by high-spending American consumers

* 72% CEOs said that any downturn in American consumer spending and employment growth will have a direct impact on European, Chinese and Japanese economies with which India finds itself largely integrated

* Signs of slowdown in US economy have started appearing - non-farm payroll numbers in August declined for first time since 2003 as jobs fell by 4,000 ; private payrolls growth slowed to average 70,000 in past three months from 165,000 in second half of 2006.

*While only 23% respondents felt that strong Asian growth will sustain economic growth in the event of a slowdown in US, 76% said that widespread slowdown in world economic growth is inevitable

*79% felt that economic conditions in Indian economy are poised for slowdown. Sharp decline in growth of industrial production in July 2007 at 7.1% against 13.2% in the same month last year was seen as an early indicator of deceleration in pace of economic expansion

* Manufacturing sector accounts for 79.3% of the index of industrial production. This has taken the maximum hit with almost 55% reduction in growth in July from 14.3% in 2006 to 7.2% this year. There was slowdown in manufacturing in April-July 2007 which was attributable to high interest rates and rupee appreciation. Capital goods sector registered 12.9% growth in July this year as compared to 18.3% same period last year

*91% CEOs were concerned about slowdown in manufacturing growth as it is a job-oriented sector, however government is planning to shift labour from crisis ridden agriculture sector to manufacturing sector

*76% respondents said that export growth is an important contributor to India’s GDP growth. With merchandize exports’ growth slowing down to 18.52% in July 2007 compared to 40.27% growth in July 2006, it would be difficult to maintain the growth momentum

*Also as rupee appreciated by 8.2% during April to July, export growth in rupee terms was a mere 3.10% this year against the growth of 31.77% in the month of July previous year