Shaw Capital Management Korea: Indian’s Economy

The Indian economy will grow by 7.2% in fiscal year 2010 (April to March)

as a surge in manufacturing and a rebound in services blunt the impact of

a drop in farm output. The recovery became increasingly private sectorled

during the second half of the fiscal year, which bodes well for its

sustainability. The government expects the Indian economy to grow by

8.5% in the next financial year that begins April 1, 2010 and to reach its

goal of 10% annual economic growth in the coming years.

Shaw Capital Management Korea: Indian’s Economy - Inflation in India has spurted in recent months, as the worst rains in nearly four decades exacerbated supply shortages. The wholesale price index rose

a provisional 8.56% — higher than the 8.5%, which the Reserve Bank of

India expects to be reached by the end of the year through March. As petrol

and diesel prices have been raised in the last week of February, the inflation

rate may rise to 9.8% by the end of March. The IMF expects the wholesale

inflation rate to reach 8% by March, before easing to 5.5% in March 2011.

India’s exports rose sharply in January while non-oil imports also surged.

Higher growth in non-oil imports vis-à-vis exports shows that domestic

investment and consumption demand continues to be strong, outpacing

rising global demand for Indian exports.

Shaw Capital Management Korea: Exports in January rose 11.5% from a year earlier to $14.34 billion, after

having increased 9.3% to $14.61 billion in December. Imports surged 35.5%

in January to $24.70 billion while oil imports galloped 56% to $7.05 billion.

The steady recovery in shipments, coupled with rising bank credit and

accelerating inflation, may prompt the RBI to raise policy rates at its next

review meeting in April.

The central bank had refrained from raising overnight rates at its last

meeting in January but ordered banks to set aside a greater share of deposits

as reserves, absorbing 360 billion rupees ($7.84 billion) from the banking

system.

Shaw Capital Management Korea: The Finance Minister presented his budget on February 26th. He reduced

personal taxation in middle-income households and rolled back some of

the fiscal stimuli provided to industry. He increased excise taxes and brought

more services under the tax net. In the world of rising concerns over

sovereign debt, he projected the deficit to come down to 5.5% in FY11 from

a revised 6.7% in FY10.

Markets have approved the government’s actions, as it laid out a medium

term plan for fiscal consolidation, aiming to reduce the deficit to 4.8% in

FY12, and to 4.1% in FY13. The deficit is 6.9% in the current fiscal year.

Ratings agencies have also liked the proposed fiscal consolidation road

map, but are in no hurry to change the country’s rating.

Shaw Capital Management Korea: The government borrowing — which would have crowded out credit markets

this year, making it difficult for the private sector to raise capital and

putting pressure on interest rates — has been contained to net borrowing

of about $80bn (£52.5bn).

This figure is 20% lower than many industry figures and analysts had

expected. The stock market has gained more than 3% since the budget was

presented.