Economy Overview

World Economy

The world is recovering from the shocks of the most severe recession in recent history. It was the first time since world war two that the global economy has substantially contracted when compared to previous years. The acute phase of the financial crisis has passed and a global economic recovery is underway. However, the recovery remains fragile and is expected to slow in the second half of 2010 as the growth impact of fiscal and monetary measures wane and the current inventory cycle runs its course. Economists believe that the baseline scenario for global growth would be 2.7 percent in 2010 and 3.2 percent in 2011. The world can be classified into slow growth economies like U.S.A, U.K and the rest of Europe who are grappling with huge fiscal deficits and significant debt, and faster growing Asian countries which have remained well insulated from the turmoil.

The world economy is trudging towards recovery but faces significant risks which can hamper growth. The reduced impact of the fiscal stimulus, sovereign defaults or banking failures could plunge the world economy back into recession.

Indian Economy

The Indian economy witnessed an average GDP growth of over 9% from 2005-08. The global financial crisis contributed to the deceleration in annual GDP growth to 6.1% in 2009. India escaped the brunt of the global financial crisis because of cautious banking policies and a relatively low dependence on exports for growth. Domestic demand driven by purchases of consumer durables and automobiles has emerged as a key driver of the economy. During the slowdown imports and exports were severely impacted. The economy is back on track, with industrial output improving every month. The government expects GDP growth to be over 8% in 2010 and above 9% from 2011 onwards.

The risks that India faces are more external in nature. The risk of the global economy experiencing a downturn, sovereign default or failure of banks threaten India’s impressive growth rate. The fiscal deficit for 2009 was at 6.9% of GDP is a cause of concern for the economy. The Finance Minister has pledged to bring the deficit down to 5.5% of GDP in 2010 and further to 4.8% in 2011. Improvement in this situation will allow better credit access to corporate as government borrowing will reduce. 
The situation remains linked to how the world progresses but the clouds are less dark now.