Economy Watch: March 2010

The Indian economy’s improving economic landscape, fiscal consolidation reforms outlined in the Union Budget 2010-11 and growth prospects in India received acknowledgement with global ratings major, Standard & Poor's (S&P) upgrading India's sovereign rating to stable from negative. Importantly, S&P factors in eight per cent growth of the economy in 2010-11.

This upward rerating would help boost investment inflows, according to Prime Minster's Economic Advisory Council (PMEAC). Analysts too believe that the sovereign rerating will increase the confidence of global investors in India.

Significantly, foreign direct investment in India grew by 15.4 per cent to US$ 1.72 billion in February 2010 compared to US$ 1.49 billion in the same month last year. During April-February period of 2009-10 the total inflows stood at US$ 24.68 billion. Earlier, during April-January 2009-10, the total foreign direct investment inflows touched US$ 22.96 billion, with FDI inflows being US$ 2.04 billion in January 2010 alone. The major sectors receiving FDI in February included services, computer software and hardware, telecommunications and housing and real estate.
 
The country has also witnessed a robust upsurge in industrial production in the recent past, which has won appreciation from quarters such as the United Nations Industrial Development Organisation (UNIDO). The Vienna-based UNIDO has commended India for having emerged as one of the world’s top 10 countries in industrial production in 2009 in its Yearbook of Industrial Statistics 2010.

Continued growth in industrial production despite the impact of global economic recession has helped India gain this position. Six core infrastructure sectors grew at 4.5 per cent in February 2010. Earlier, industrial production has grown by a robust 16.7 per cent in January 2010 compared to one per cent in January 2008, led by a good show by manufacturing sector. Manufacturing, which has around 80 per cent weight in the Index of Industrial Production (IIP)-a measure of factory output-rose 17.9 per cent during the month against one per cent in January 2008.

Infrastructure sector too has been witnessing increased private investment encouraging the government to emphasise its stance on enhancing public private partnerships. In this respect, the government has also allowed issuance of long-term infrastructure bonds by private sector banks and financial institutions similar to those issued by the government for raising funds for investment in the sector.

The stock markets in India witnessed positive movements on the back of a surprise hike by the Reserve Bank of India (RBI) in its key policy rates in the last week of March. However, they have managed to remain in the positive zone owing to steady buying. This reinforces the bullish undertones in the markets and strong expectations of the forthcoming results season.