Economy set for positive growth in 2010: S&P midyear outlook

Mumbai: The turbulence in the global economy and its financial markets during the last year or so has highlighted a shift in the economic world order, from being G-8 focused to, increasingly, the more inclusive and relevant G-20.

As signs of stabilisation and even a turnaround have begun to manifest, Standard & Poor's Asia-Pacific chief economist, Subir Gokarn, presents a mid-year review of the Indian economy.

"We anticipate that India will remain in positive growth territory throughout this global recession and financial turmoil," observed Dr Gokarn. Explaining this he added, "Domestic policy responses, both monetary and fiscal, appear to have played a significant role in shoring up domestic demand in an environment of drastically reduced exports."

"India's GDP growth is forecast at 5.8-6.3 per cent in 2009 and 6.8-7.3 per cent in 2010. GDP will be driven by the Indian economy's very strong domestic consumption, which has been held up by stable rural demand and the recent hike in public sector salaries."

A review of the last two quarters shows that the expansionary domestic policies and relatively limited financial integration significantly helped India to sustain positive growth in the first quarter. India discarded its fiscal consolidation targets and rapidly increased spending to bolster domestic industry, infrastructure, and construction-and propel domestic consumption. The elections in India also helped sustain spending in the first half of 2009.

Besides the boost to industry, India gave direct stimulus to the larger rural population, low income earners, and pensioners in the form of farm-loan waivers, subsidies to buy consumer durables, tax incentives, and so on.