Indian economy dragged slow by global slump, growth forecast may fall flat

Special Report:Global Financial Crisis

by Li Bo

BEIJING, March 8 (Chinese media) -- The global financial

storm has taken a toll on India, one of the fastest growing economies in the

world, dragging slow all sectors of the country remarkably in the outgoing

fiscal year.

Asia's developing economies such as India are

suffering more than expected from the global slowdown and must take steps to

offset the impact, said Haruhiko Kuroda, president of the Asian Development Bank

last month.

Many economists doubt whether the government's

forecast of a 7.1 percent growth rate in the 2008/09 fiscal year ending March

31could be met.

An article carried by The Economist last month even

asserted that a hard landing for the Indian economy, which means the economy

goes directly from a period of expansion to a recession, is imminent if

something is not done.

Not too long ago, India caught the eye of the world

by chalking up a growth rate of over 9 percent annually for three consecutive

years.

With an average annual GDP growth rate of 5.8 percent

for the past two decades, the economy is among the fastest growing in the world.

But this year, the country is beginning to feel the

full impact of the global slump.

Official data show the economy has moderated to 5.3

percent for the December quarter, well below forecasts of 6.2 percent and the

previous quarter's growth of 7.6 percent.

It was the slowest growth since the March quarter of

2003.

The manufacturing sector fell 0.2 percent in the

October-December quarter from a year earlier.

The farming sector, which provides a livelihood for

some 60 percent of Indians, contracted 2.2 percent year-on-year.

The textile industry, India's No. 2 foreign exchange

earner, is facing a dilemma in cutting 500,000 jobs till April 2009.

India's famed outsourcing business with a value of

some 40 billion U.S. dollars a year, is also reeling from the consequences of

the global slowdown though the sector showed somewhat resilience.

The industry is expected to grow 16-17 percent in the

current financial year ending March 2009, far below the originally projected

21-24 percent. Revenues grew 28 percent the previous year.

In the United States, where most of the service

clients of the Indian outsourcing firms come from, 70 percent of companies with

such business abroad have started to negotiate a lower cost.

Moreover, India's outsourcing business is facing

challenges from other countries including the Philippines. Apart from lower pay,

Filipinos are also said to have the advantage of more tender English, as some

native English speakers suggest.

India has also seen its tourist arrivals drop in

recent months for the first time since 2002.

Foreign tourist arrivals to India dropped 12 percent

to 522,000in December, compared to 596,560 in the same month of 2007.

As tourism contributes more than 6 percent to India's

GDP of 1 trillion dollars and employs 53 million people directly or indirectly,

the drop has jeopardized the livelihood of thousands of people.

A Labor Ministry survey estimated that half a million

jobs were lost in India from September to December last year in the sectors of

mining, metals, textiles, automobiles, transport and information technology.

Analysts say the worsening economic environment would

lead to political turmoil or social unrest in some countries.

With only a month to go before the general election

in India, the state of the economy will surely feature prominently in the

balloting, especially for the 200 million people living below the poverty line.

About 32 percent of people in a recent nationwide

survey cited the economy as their biggest concern ahead of the parliamentary

elections.

The government has taken a series of steps including

tax breaks and slashing key interest rates five times since September, as well

as pumping in billions of dollars to ease the economic pain.

But ADB chief Kuroda said more investment in

infrastructure is needed to promote economic growth, particularly in such

countries as India, and regional trade should be boosted to reduce reliance on

ailing markets in the West.

Some analysts also suggested economic reforms,

boosting domestic demand and adjusting monetary policy as a remedy.