Thursday, June 26, 2008

Is this a slow down or a consolidation phase for Indian Economy?

Last eight months have proved to be really tough for the Indian economy. A slow down in the US market has hampered the exports of both goods and services thus hampering the growth of textile and IT sector. Our manufacturing and agriculture sector is not strong enough to help sustain GDP growth rate of over 8% for a long time. Agriculture and Manufacturing sectors have struggled this year and have grown by 3.5% and 5.8% respectively. Services sector which is the largest contributor to the GDP and employs a large percentage of the labor force (28% of our total labor force) depends largely on the US and with recession hitting the US market it seems unlikely that Indian IT companies would be able to meet their set targets for this year. High inflation has hit the manufacturing sector badly growth was pulled down in April 2008 as manufacturing growth was a dismal 7.5% as compared to April 2007 when the growth was at 12.4 per cent. Rising inflation, rising interest rates, sluggish growth of real estate market and slow down in the industrial production are these indications of slow down in the economy. It would be really difficult to sustain the GDP growth rate of over 8% in the coming years. We should expect to see the GDP growth rate to even fall below 7.5% in the medium term. All of this indicates that Indian economy is going through a consolidation phase.