With downbeat sensex, currently around 16,000, I expect it to go down to 15,000 in the next 3 – 4 months. Some of the major corporates like Reliance have already lost huge market capitalization. With downgrading of 3 leading private sector banks and LIC, fall in the sensex may be even steeper. The outlook for the IT sector is bleak. The outlook for corporate sector borrowing abroad is also bleak, and going to be difficult with downgrade of India’s sovereign credit rating to Baaa3, whatever that means. Last year, that is 2011-12, industrial sector could register only 2.8% growth, which is likely to bring down the projected 6.9% in GDP growth to somewhere between 6.3 – 6.5. As of now, there are no visible signs of recovery in the industrial sector.
Prospect for agricultural output in 2012-13 is uncertain and lot will depend on two factors, namely, (i) how do we manage the stockpile of foodgrains which is rotting on the roadsides in the absence of adequate storage and (ii) distribution of rainfall over the country. But it is our experience that the country is not capable of managing consecutive years of good monsoon. Among others, it increases the misery of the farmers and increases their indebtedness. A trouble is brewing in the farm sector already.
The services sector cannot be a savior, atleast in the current year, in view of global economic slowdown. So far as global economy is concerned, there is impending crisis of the eurozone. Probability is 0.75 – 0.80 that Greece may exit the euro. Spain is a large candidate waiting in the queue for bailout of its banks. The mood across the eurozone is anti-austerity which means that Europe is getting into a crisis of solutions. Taken as a whole, the present year is going to be one of the most difficult years not only for the world economy, but for our own economy as well.
More than industry, what I am worried about is about helplessness of the central bank and the Government of India. As far as I understand, RBI has never been in such a dilemma before – which one to look after – falling growth or rising inflation? If interest rate is what is bothering you, you may as well forget any hope for a further rate cut. There may atleast be no change in the short run which is better than any rate action. It is also possible that if inflation starts inching up, probably RBI will have to increase the rate, though it knows that it will not help, and the battered UPA-II government is simply clueless on what it can do in its moments of crisis. Keeping all these things in mind, my advice to you would be not to expect GDP growth to be 7.6% as has been projected in the North Block.
It may be between 5 – 6%, may be somewhere around 5.5%. I can be more specific, may be after a couple of weeks from now. Take 5.5 as the figure, then shortfall from the projected growth rate works out to be 2.1%, a substantial shortfall indeed. It will again make the budget estimates go for a six. You may have to bring in more realism in your strategic business planning.
Regards,
T.K. Bhaumik,
Economic Advisor
