Alternative Market Briefing

India`s economy, Rupee seen weakening, fiscal deficit may rise to 4.5%

Thursday, August 28, 2008

From Matthias Knab, Opalesque Europe: The Indian Prime Minister's Economic Advisory Council in its August economic outlook report for 2008/09 said that:

The economy would slow down to 7.7% for the y/e March 2009, from earlier forecasts of 8 - 8.5%, due to an economic slowdown caused by higher oil, commodity and food items.

Deepak Lalwani from London based Astaire & Partners Ltd. (d.lalwani@astaire.co.uk) added in his latest India Report that his forecast of 7.7% made on 4 June 2008 remains unchanged currently.

Industry to expand by 7.5%, agriculture by 2% and services by 9.6%

Investment rate to remain at 37.5% but savings rate to decline to 34.5% of GDP due to worsening Government finances and lower corporate profits

Inflation can reduce to 8-9% by March 2009. A tight monetary policy to be maintained to cool prices

Fiscal deficit target of 2.5% of GDP, revenue deficit to persist.

Current account deficit seen at 3.2% of GDP. Lalwani feels this will continue to put pressure on the Rupee and see a trading band vs the US Dollar of Rs 43.50 - 44.50 for the rest of this quarter. The Rupee has depreciated 11% so far this year reversing the 11% appreciation in 2007.

Export growth seen at 31.4%, imports growth seen at 37.8%. Crude oil imports to be 80% higher to March 2009. Lalwani's view is that the export growth rate at 31.3% seems ambitious, despite the weaker Rupee. A mor......................

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