By Arvind Padmanabhan,IANS,
No other year in recent times saw such wild mood swings in the Indian economy than 2008, which started on a strong note but ended on a weak wicket in the wake of a general global slowdown and severe recession in some of the richest countries like the US and Japan.
From economic expansion to performance of equity markets, and from export growth to industrial production, all indicators had the same story to tell: The year had started with a strong economic performance, but the momentum was lost as the months passed, as India faced the ripple effects of the gloom in the global economy.
The indicator that captured the trend best was the 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE), often seen as a barometer not only for investor mood but also the overall performance of the Indian economy and its corporate sector.
On Jan 10 this year, the Sensex was ruling at an all-time intra-day high of 21,206.77 points. But as the year is drawing to a close, it is languishing at around the 9,000-point mark – a fall of over 50 percent in the year. Last year, the index had gained nearly 50 percent.
The Sensex apart, exports fell in October for the first time in seven years. Indirect tax mop up was down eight percent in October. Industrial production, which was among the main drivers of the economy, fell 0.4 percent. The rupee fell below 50 to a dollar in November to an all-time low. And, as per the government’s own admission, some 65,000 jobs were lost between August and October.
The high cost of crude oil, which jumped from under $40 per barrel a year ago to nearly $150 per barrel in August, added to the country’s woes in terms of higher import bill and accentuated the losses of state-run fuel retailers, which had to bear the burden of having to sell hydrocarbon products below cost.
As a result, the United Progressive Alliance (UPA) government, led by Prime Minister Manmohan Singh, which at the beginning of the year said the Indian economy would continue to grow at over nine percent this fiscal, had to tone down its target sharply, hoping to achieve an overall increase of 7-7.5 percent in gross domestic product (GDP).
“Two key sectors, agriculture and industry, were unable to maintain the pace due to the global economic slowdown. This will have a serious effect on our overall growth,” said Dalip Kumar, head of projects at the National Council of Applied Economics Research, an economic think-tank.
The only notable saving grace was on the price front, where the annual rate of inflation fell from a 16-year high of 12.63 percent for the week ended Aug 9 to 6.84 percent for the week ended Dec 6 – but not without taking a toll on industrial growth on account of the tight monetary policy of the central bank during the months before.
“Inflation is not a concern any more. If the Indian government does not think in terms of long- term measures to contain the slowdown, the medium-term growth projection of 8-9 percent will be difficult to achieve,” said Biswa N. Bhattacharyay, Tokyo-based special adviser with the Asian Development Bank (ADB).
As India Inc. cried hoarse, saying the credit squeeze due to the policies of the central bank was affecting its day-to-day business, policymakers appeared to be in a denial mode initially, with the prime minister maintaining that India remained largely insulated from the goings-on in the world economy.
But that was not the case. As official data on a host of areas started confirming the worst worries articulated by India Inc., Manmohan Singh had to himself intervene and unveil a Rs.30,000-crore (Rs.300-billion/$6-billion) package in December to bail out the corporate sector.
There is a fear now that the major pump priming of the economy by the government, the large-scale spending on infrastructure and the relaxation of the monetary policy by the central bank to open the purse strings for the corporate sector may threaten the country’s fiscal deficit, which was kept at a moderate level during the past five-six fiscals.
The year, nevertheless, did not pass without some high points.
India Inc. came under the global media glare when the Tata group, the country’s largest industrial house with annual turnover of $62.5 billion, showcased its little car ‘Nano’ in January, that would cost all of $2,500 at factory gates. Time magazine named it the most important car of the century since Ford’s revolutionary Model T.
It was a different matter that the industrial house had to shift the production site for the small car from Communist-ruled West Bengal to Gujarat following violent protests by a section of farmers that claimed their land was acquired forcibly without adequate compensation.
The same Tata group announced a few months later the acquisition of two iconic British automobile brands, Jaguar and Land Rover, from Ford Motor Co for $2.3 billion in what was yet another high-notch buyout by a globally ambitious Indian group.
The international investor community also continued to bet on the Indian market. Norway-based Telenor, the world’s seventh largest telecom operator, bought a new-generation telecom company Unitech Wireless by paying $1.29 billion for a 60 percent stake.
Similarly, another start-up, Swan Telecom, which did not have a single subscriber, sold a 45-percent stake to the UAE’s Etisalat for $900 million, taking the company’s book value to $2 billion.
In fact, the inflow of foreign direct investment between April and September amounted to $17.21 billion, representing a growth of 137 percent over $7.25 billion in the like period last fiscal. The services sector attracted the maximum foreign investment, followed by construction, including roads and highways, housing and real estate, and computer hardware and software.
The year also saw a record number of seven Indian firms make it to the list of Fortune 500 companies – two from the private sector, namely, Reliance Industries and Tata Steel, and the rest from the public sector.
This apart, the Indian telecom industry also witnessed unprecedented growth and started adding 8-10 million new mobile phone users each month to make the country’s subscriber base of more than 300 million, the largest after China’s, displacing the US. The stage is now set for the launch of 3G, or third generation services.
Looking ahead, economists and industry experts alike predict some tough times for the Indian economy, at least during the next two-three quarters. But they also maintain that India stands on a much better wicket compared with many other countries to weather the storm, particularly because of the strong push from some key drivers of growth, like savings and investment.
As Reserve Bank of India Governor D. Subbarao remarked recently: “A period of painful adjustment is inevitable. But once the crisis is behind us and calm and confidence are restored in the global markets, economic activity in India will recover sharply.”