Indian economy dragged slow by global slump, growth forecast may fall flat

BEIJING, March 8 (Xinhua) -- The global financial storm has taken a toll on India, one of the fastest growing economies in the world, dragging slow all sectors of the country remarkably in the outgoing fiscal year.

Asia's developing economies such as India are suffering more than expected from the global slowdown and must take steps to offset the impact, said Haruhiko Kuroda, president of the Asian Development Bank last month.

Many economists doubt whether the government's forecast of a 7.1 percent growth rate in the 2008/09 fiscal year ending March 31could be met.

An article carried by The Economist last month even asserted that a hard landing for the Indian economy, which means the economy goes directly from a period of expansion to a recession, is imminent if something is not done.

Not too long ago, India caught the eye of the world by chalking up a growth rate of over 9 percent annually for three consecutive years.

With an average annual GDP growth rate of 5.8 percent for the past two decades, the economy is among the fastest growing in the world.

But this year, the country is beginning to feel the full impact of the global slump.

Official data show the economy has moderated to 5.3 percent for the December quarter, well below forecasts of 6.2 percent and the previous quarter's growth of 7.6 percent.

It was the slowest growth since the March quarter of 2003.

The manufacturing sector fell 0.2 percent in the October-December quarter from a year earlier.

The farming sector, which provides a livelihood for some 60 percent of Indians, contracted 2.2 percent year-on-year.

The textile industry, India's No. 2 foreign exchange earner, is facing a dilemma in cutting 500,000 jobs till April 2009.

India's famed outsourcing business with a value of some 40 billion U.S. dollars a year, is also reeling from the consequences of the global slowdown though the sector showed somewhat resilience.

The industry is expected to grow 16-17 percent in the current financial year ending March 2009, far below the originally projected 21-24 percent. Revenues grew 28 percent the previous year.
In the United States, where most of the service clients of the Indian outsourcing firms come from, 70 percent of companies with such business abroad have started to negotiate a lower cost.

Moreover, India's outsourcing business is facing challenges from other countries including the Philippines. Apart from lower pay, Filipinos are also said to have the advantage of more tender English, as some native English speakers suggest.

India has also seen its tourist arrivals drop in recent months for the first time since 2002.

Foreign tourist arrivals to India dropped 12 percent to 522,000in December, compared to 596,560 in the same month of 2007.

As tourism contributes more than 6 percent to India's GDP of 1 trillion dollars and employs 53 million people directly or indirectly, the drop has jeopardized the livelihood of thousands of people.

A Labor Ministry survey estimated that half a million jobs were lost in India from September to December last year in the sectors of mining, metals, textiles, automobiles, transport and information technology.

Analysts say the worsening economic environment would lead to political turmoil or social unrest in some countries.

With only a month to go before the general election in India, the state of the economy will surely feature prominently in the balloting, especially for the 200 million people living below the poverty line.

About 32 percent of people in a recent nationwide survey cited the economy as their biggest concern ahead of the parliamentary elections.

The government has taken a series of steps including tax breaks and slashing key interest rates five times since September, as well as pumping in billions of dollars to ease the economic pain.

But ADB chief Kuroda said more investment in infrastructure is needed to promote economic growth, particularly in such countries as India, and regional trade should be boosted to reduce reliance on ailing markets in the West.

Some analysts also suggested economic reforms, boosting domestic demand and adjusting monetary policy as a remedy.