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India 2011: Muscling ahead, facing inflation
January 27, 2011, Thursday
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EDITOR'S note:
The article is the last Shanghai Daily selects from a series of Wharton Business School's analyses of the global economy in 2011. Articles have covered China, the US, Europe and India. For the rest of the world, please click on the link at the end of the article for the complete Wharton series.
IN India, the economy is expected to muscle ahead. Estimates of GDP growth vary from 9.7 percent (the IMF prediction for 2011) to 7.7 percent (the Credit Suisse prediction for fiscal 2011-12).
Credit Suisse is a rare pessimist; almost everybody else has upped their forecasts. The government projection is 8.75 percent, with a possible 0.35 percent addition.
"India is on a mission to get its annual GDP growth to 10 percent," according to Bundeep Singh Rangar, chairman of IndusView, an adviser to MNCs seeking opportunities in India. "A good monsoon season and a strong global recovery could make 2011 the year that India achieves that goal."
The Bombay Stock Exchange sensitive index (Sensex) should keep pace with GDP. "By the end of 2011, the Sensex is likely to be between 24,000 and 25,000," says Rajinder Sabherwal, who manages a macro fund called Magister Ludi Global.
New York-based Sabherwal, however, doesn't think India will be a top performer in the markets. "India is a defensive holding for us. It sells at a premium. To some extent that is justified, but it is vulnerable to inflation and rising oil prices. In emerging markets, we prefer Turkey, Russia, Thailand, South Korea and Poland."
Sunil Bhandare, adviser (economic and government policy) at the Tata Strategic Management Group, sees a 12 percent to 16 percent growth in the Sensex over current levels (around 20,000 at the end of December).
One big worry is inflation. Dharmakirti Joshi, chief economist at credit rating agency Crisil, says inflation will be the biggest challenge in 2011. His other concern is the impact of rising capital inflows on the rupee.
Naresh Takkar, managing director and CEO of credit rating agency ICRA, also lists inflation as a top concern, especially in commodity prices.
He sees improving international economic sentiment as a "double-edged sword" for India. "Sectors that are dependent on international demand will benefit, but commodity prices will see a further upturn," he says.
If inflation climbs, the Reserve Bank will have to hike interest rates. This could result in "some moderation" in the growth rates of investment and private consumption, according to Joshi.
It's on the reforms front where there is the greatest amount of uncertainty. Much could happen. Joshi pins big hopes on the proposed new goods and services tax, which he describes as a "game changer."
A slow approach would be just right for new banking licenses, suggests Rajesh Chakrabarti, finance professor at the Indian School of Business. "The dominant view is that caution and safety are key, and no rush towards greater liberalization is warranted."
(Reproduced with permission from China Kowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
The article is the last Shanghai Daily selects from a series of Wharton Business School's analyses of the global economy in 2011. Articles have covered China, the US, Europe and India. For the rest of the world, please click on the link at the end of the article for the complete Wharton series.
IN India, the economy is expected to muscle ahead. Estimates of GDP growth vary from 9.7 percent (the IMF prediction for 2011) to 7.7 percent (the Credit Suisse prediction for fiscal 2011-12).
Credit Suisse is a rare pessimist; almost everybody else has upped their forecasts. The government projection is 8.75 percent, with a possible 0.35 percent addition.
"India is on a mission to get its annual GDP growth to 10 percent," according to Bundeep Singh Rangar, chairman of IndusView, an adviser to MNCs seeking opportunities in India. "A good monsoon season and a strong global recovery could make 2011 the year that India achieves that goal."
The Bombay Stock Exchange sensitive index (Sensex) should keep pace with GDP. "By the end of 2011, the Sensex is likely to be between 24,000 and 25,000," says Rajinder Sabherwal, who manages a macro fund called Magister Ludi Global.
New York-based Sabherwal, however, doesn't think India will be a top performer in the markets. "India is a defensive holding for us. It sells at a premium. To some extent that is justified, but it is vulnerable to inflation and rising oil prices. In emerging markets, we prefer Turkey, Russia, Thailand, South Korea and Poland."
Sunil Bhandare, adviser (economic and government policy) at the Tata Strategic Management Group, sees a 12 percent to 16 percent growth in the Sensex over current levels (around 20,000 at the end of December).
One big worry is inflation. Dharmakirti Joshi, chief economist at credit rating agency Crisil, says inflation will be the biggest challenge in 2011. His other concern is the impact of rising capital inflows on the rupee.
Naresh Takkar, managing director and CEO of credit rating agency ICRA, also lists inflation as a top concern, especially in commodity prices.
He sees improving international economic sentiment as a "double-edged sword" for India. "Sectors that are dependent on international demand will benefit, but commodity prices will see a further upturn," he says.
If inflation climbs, the Reserve Bank will have to hike interest rates. This could result in "some moderation" in the growth rates of investment and private consumption, according to Joshi.
It's on the reforms front where there is the greatest amount of uncertainty. Much could happen. Joshi pins big hopes on the proposed new goods and services tax, which he describes as a "game changer."
A slow approach would be just right for new banking licenses, suggests Rajesh Chakrabarti, finance professor at the Indian School of Business. "The dominant view is that caution and safety are key, and no rush towards greater liberalization is warranted."
(Reproduced with permission from China Kowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
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