India's economic miracle losing its lustre: analysts
21 hours ago
NEW DELHI (AFP) - Booming India is reeling from a flurry of bad financial
headlines, suggesting the outlook for the world's second fastest-growing
major economy is not as rosy as it was, analysts say.
Economic growth is losing pace and inflation is on the rise, meaning
India's
central bank -- which has hiked interest rates nine times since 2004 to
tame
prices -- has little room to loosen monetary policy to spur activity, they
say.
"The picture of very strong growth and low inflation in India is starting
to
give way to one of slowing growth and rising inflation," said Robert
Prior-Wandesforde, an economist at HSBC in Singa****e.
Last Friday, inflation in Asia's third-largest economy hit a nearly
10-month
high of 5.02 percent, pu****ng through the central bank's ceiling of five
percent for this fiscal year.
Adding to the gloom has been a 25 percent slide since January 10 in
India's
benchmark Sen*** share index -- whose 47 percent jump last year made it
one
of the world's top performers -- as foreign investors have bailed out.
"With the (global) economic turbulence, you're seeing a lot of risk
aversion," said Amitabh Chakraborty, equities president of Mumbai's
Religare
Securities.
Also, the Congress-led government, which faces general elections in little
over a year, is storing up fiscal trouble with its 15-billion-dollar loan
bailout for farmers, big civil service pay hikes and tax cuts announced
late
last month in its populist, poll-geared budget, economists say.
"We think the fiscal deficit will increase due to the spending pressures,"
said Goldman Sachs economist Tushar Poddar.
Economic growth is forecast by the government to slow to 8.8 percent in
this
fiscal year to March 31, 2008 from 9.6 percent last year -- the first
deceleration in three years.
Some economists project growth could fall to as low as seven percent next
year due to the US-led global slowdown, aggressive monetary tightening and
a
sharp rise in the rupee's value against the dollar, which has hit ex****ts.
Seven percent growth would still be enviable by anemic Western levels but
is
too low for India, where analysts say double-digit expansion is needed to
help hundreds of millions escape a grim poverty trap.
The stock market's slide has also cast a cloud over plans by firms to
raise
a projected 15 billion dollars in IPOs this year -- nearly double the
record
8.3 billion raised in 2007.
Already, two high-profile firms have pulled their IPOs, including Emaar
MGF -- a joint venture of Dubai's Emaar, the world's biggest property
developer --- which abandoned its bid to raise 1.6 billion dollars, citing
"indications of a US recession and global meltdown."
The IPOs are key to expansion as much of the funds raised would be
invested
in plant and machinery, and improvements in India's dilapidated
infrastructure such as its potholed roads, shabby ****ts and unreliable
power.
Lengthy blackouts even in big metropolitan centres such as New Delhi are
routinely cited by economists as major growth constraints.
While India's economy is better insulated than many other Asian nations
from
the global slowdown because it is not so heavily dependent on ex****ts, it
is
not immune to the chill financial headwinds, analysts say.
A lot of economic growth has been driven by risk capital, especially from
the United States, which is slowing as foreign investors repatriate funds
amid fears of a US recession, said Religare's Chakraborty.
For the time being, the government and central bank are making checking
inflation their priority.
The central bank and the government are "signalling the risk to inflation
is
a bigger worry than the risk to growth," said JP Morgan analyst Rajeev
Malik.
Soaring world commodity and crude oil prices have alarmed the central bank
while the government sees cutting inflation as crucial to its political
fate, analysts say.
Inflation has been blamed as a key factor in several state poll drubbings
for Congress, which owes its 2004 general election win to sup****t from
India's poor m***** -- hardest hit by price rises.
Prime Minister Manmohan Singh last month called inflation "the cruellest
tax" as it hits the poor the hardest.
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