Stanchart sees 2010 recovery

The Indian economy might be facing a temporary setback with inflation hovering around 9.80 percent and GDP growth rate at 7 percent, coupled with the liquidity crunch and FII outflows, but indicators are positive, feels Shiv Khazanchi, managing director, Standard Chartered Private Bank.

Addressing the Indian Chamber of Commerce on future of the economy, Khazanchi said, “Indian economy has advantages - a rising middle class population, strong domestic orientation, domestic savings rate at 35 percent – and so would be able to weather out the global financial storm. GDP growth rate would be restored by middle of 2009-10 or early 2010.”

 

According to a Standard Chartered in-house research paper, Indian GDP growth would settle at 7 percent in 08-09 fiscal, with 2009-10 to see GDP growth of 6.3 percent and inflation at 3.56 percent.

Cash Reserve Ratio will be 4 percent, Repo rate at 6 percent, reverse repo at 5 percent and rupee at 45 against dollar, it predicted.

The bank said balance of payment (BOP) data could worsen for 2008-09 but it would reverse from a deficit to $10 billion surplus in 2009-10 .

He said the next nine months would be crucial for companies because of the liquidity crunch, slump in demand and reluctance of banks to lend, but the situation would reverse by early 2010.

There would be inadequate availability of funds to fuel the huge investment demands and banks would lend selectively but the risk appetite of the banks would gradually gather momentum by Q2 of 2009, he added.

Compared to India, Khazanchi claimed China was better placed to provide fiscal support as it announced a $568 billion package thanks to a surplus budget, healthy public finances and a savings ratio higher than India’s.