>RESILIENCE OF INDIAN ECONOMY

India: Faring its way in a challenging environment
The increasing economic and political influence of the BRIC countries has attracted considerable attention over the past five years. India is no exception. Key reforms implemented in the 1990s have pushed the economy on an exceptional growth path and enabled important progress in the social area. The dynamic IT sector which has lifted India amongst the world’s leaders in this sector has also put the country in the spotlight. As regards to future prospects, they remain positive. With the second world’s largest population and a rapid economic growth, India is expected to overtake the Japanese economy in PPP terms by 2025 to become the world’s third largest economy. Its attractiveness in terms of market potential is also huge due to a rising middle class. However many obstacles lie ahead and further reforms will be crucial to overcome them. On top of the list comes the need for a wider coverage of social safety nets, an improvement in government practices, a reduction in income inequality and poverty and infrastructure improvements. Moreover, the public finance burden must be reduced in order to provide an enhanced leeway to implement vital structural reforms. In the short term, India’s economy is proving resilient in the face of the global economic crisis and will perform rather well compared to other Asian countries. These good growth prospects will be further boosted by the strong mandate of the Congress-led coalition which has injected some optimism in the economy. Nonetheless it is worth noting that the country will still head towards a marked slow down after having enjoyed five years of high economic growth.

Resilience of the Indian economy in FY 2009/10
Asian countries are caught again in the global economic turmoil a decade after the Asian financial crisis. Highly exposed to trade, these economies have experienced a sharp economic slowdown. Although 2nd quarter data seems to indicate a timid rebound, many Asian countries are expected to post negative GDP growth in 2009. On the contrary, the Indian economy is likely to rank amongst the best performing economies in the region in 2009. Moreover, the overwhelming victory of the Congress- led coalition party in the recent elections will likely give a boost to growth. We are expecting a 6% GDP growth in FY 2009/2010 and 7% in FY 2010/2011. However, these good growth prospects mark a slowdown in FY 2009/10 compared to an average growth of 8.5 % over the past 5 years.

Some sectors nevertheless affected…
Strong demand plus stimulus measures have not been enough to compensate downward pressures brought by the global crisis and past restrictive policy measures.

In fact, since 2004, the Indian economy was booming as a result of buoyant investment in the industrial sector. In addition to that, the growing bubble in the real estate has made access to property unaffordable and was thus becoming unsustainable (see chart). In reaction to this situation, the Reserve Bank of India (RBI) adopted a restrictive monetary policy since the beginning of 2008 to cool down economic activity.

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