In a surprise to many, India’s central bank has cut its base-lending rate four times since October, going from 9% to its
current rate of 5.5%. After all, isn’t India’s economy growing nearly as fast as
China’s? And isn’t that growth already being fueled by an unprecedented level of
middle-class spending?
The answer to both questions is a resounding “yes.”
But there’s a pesky asterisk here – and that’s the global financial crisis,
the cash drought that has sapped nearly every country directly through their
banking systems, or indirectly through fluctuations in exchange rates and
gyrations in revenue received from key trading partners.
And the Reserve Bank of India’s rate cut proved two things:
First, its new governor, Duvvuri Subbarao, is less afraid of inflation than he is a
global slowdown.
“A 100-basis-point cut is an indirect admission that not all is ‘hunky dory’ with the
India growth story,” Nandkumar Surti, chief financial officer at JPMorgan Asset
Management India Pvt. Bank in Mumbai (JPM), told
Bloomberg News. “One way to look at it is that the
global problem has begun to affect us.”
For years, India doggedly raised rates to keep widespread inflation in check.
It even went as far as subsidizing food and forcing the state-owned oil
companies to sell gasoline to domestic consumers below cost.
And second, Subbarao believes India should taper its economic growth outlook
for 2009.
This installment of “Outlook 2009,” report will chart India’s growth next
year – its headwinds, tailwinds and possible factors that could turn the
direction of either.
It will also reveal the two best ways investors can ride along with India’s
economic growth, and take home profits from India’s bullet-proof industries –
and in the process, perhaps even offset some of the losses they’ve incurred here
in the U.S. market.
India’s Headwinds
India’s economy logged an annual growth rate of 7.6% for the quarter ended
Sept. 30 – its slowest rate of growth in nearly four years.
India’s farm sector employs about 60% of India’s 1.14 billion people. That
was great during last year’s run-up in commodity prices, but those prices have
subsequently fallen, and so has the ag sector’s rate of growth – 2.7% in the quarter ended Sept. 30, which is well below the
4.7% pace of a year ago, according to The Wall Street
Journal.
Manufacturing – also a powerful economic engine – has also stopped chugging
as hard.
