Highlights • 6.1% growth in 2009-10Q1, drought restricts potential ahead • Construction and services power growth while manufacturing picks up • Need to target rabi crop as monsoon deficit stands currently at 25% • Growth estimated at 6.6% this fiscal, inflation bigger worry • While food price pressure will ease by winter, commodities set to rise e.g steel India: Kal, aaj aur kal Throughout the gloom of last year, we have been optimistic about the growth in India, our estimates of more than 6% growth this year were amongst the highest while finance whizzes were busy forecasting dire numbers in the range of 4-6%. In our January newsletter we had said that by the second half of this year, there would be an overall improvement. We had also cautioned that a deflationary situation that was being discussed was of little import here where inflation would be the prime worry. As the months passed and the revival became more apparent, estimates were rapidly revised upwards, both of growth and inflation. Though some find this surprising, we maintain, that this was all predictable, as was the downturn, and as is the inflationary environment in coming months. As we go ahead, growth will show ‘surprising’ levels, e.g. the IIP numbers can get close to 10% - on the back of low base of last year, electricity and mining are doing better this year, vehicle sales are soaring with domestic festival demand etc. We see no reason to cheer though. The past year has taken a heavy toll on the finances of the government and investment plans in the private sector, consumer confidence has also been hit hard, while inflation has eaten gaping holes in the common man’s wallet. Moreover, the true impact of the poor monsoon will be known only by the year end. The financial sector types meanwhile are having a field day once more, rapidly pushing up spirits and stock markets. Some are even getting into debates on whether this slowdown would take the shape of a V, U, W, or the Riemann’s zeta function, as Bloomberg columnist Moynihan quipped. It is important to remember though that the ‘green shoots’ which are growing tall now have sprung up in response to fiscal stimuli and rate cuts worldwide, not through any change in fundamental factors. Work is on towards changing standards of regulation and supervision internationally, but these will take time to be implemented. In the meanwhile, we have to point out that we are now tired of stressing on one issue - that such high levels of expenditures, in India and abroad, are inflationary whatever way one tries to handle it. Expectedly, the rational components of financial markets recognize this problem and we are seeing significant upward pressure on interest rates. This is a natural outcome of government over-spending. There is a possibility that to get around this problem this government may try to borrow from abroad. And if that happens on a large enough scale, the final degree of freedom that the government will have, would have been used up. We therefore do not support such an initiative, despite its short term advantages of keeping upward interest rate pressures under check. Note that India has done something similar in the past (during the Rajiv Gandhi years) when it borrowed internationally and spent on unproductive activities. For a few years things looked very good, but pressures were building. The ruling conglomeration in the post Rajiv Gandhi years just did not have the ability to handle the pressures so generated. We all know the final outcome. At the end of the day we cannot spend this much without paying for it one way or another. And it is better to pay by way of lower investment, higher interest and prices, rather than macro-economic instability. But the first best solution remains the same - don’t spend on unproductive activities please. PS. Please visit our new homepage for interactive time series graphs of economic indicators

1. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
The Emerging Economy
– Monthly Newsletter from Indicus
Analytics
8th September 2009
Highlights
• 6.1% growth in 2009-10Q1, drought restricts potential ahead
• Construction and services power growth while manufacturing
picks up
• Need to target rabi crop as monsoon deficit stands currently at
25%
• Growth estimated at 6.6% this fiscal, inflation bigger worry
• While food price pressure will ease by winter, commodities set to
rise e.g steel
India: Kal, aaj aur kal
Throughout the gloom of last year, we have been optimistic about the
growth in India, our estimates of more than 6% growth this year were
amongst the highest while finance whizzes were busy forecasting dire
numbers in the range of 4-6%. In our January newsletter we had said that by
the second half of this year, there would be an overall improvement. We had
also cautioned that a deflationary situation that was being discussed was of
little import here where inflation would be the prime worry. As the months
passed and the revival became more apparent, estimates were rapidly revised
upwards, both of growth and inflation. Though some find this surprising,
we maintain, that this was all predictable, as was the downturn, and as is the
inflationary environment in coming months.
As we go ahead, growth will show ‘surprising’ levels, e.g. the IIP numbers
can get close to 10% - on the back of low base of last year, electricity and

2. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
mining are doing better this year, vehicle sales are soaring with domestic
festival demand etc. We see no reason to cheer though. The past year has
taken a heavy toll on the finances of the government and investment plans
in the private sector, consumer confidence has also been hit hard, while
inflation has eaten gaping holes in the common man’s wallet. Moreover, the
true impact of the poor monsoon will be known only by the year end. The
financial sector types meanwhile are having a field day once more, rapidly
pushing up spirits and stock markets. Some are even getting into debates on
whether this slowdown would take the shape of a V, U, W, or the
Riemann’s zeta function, as Bloomberg columnist Moynihan quipped.
It is important to remember though that the ‘green shoots’ which are
growing tall now have sprung up in response to fiscal stimuli and rate cuts
worldwide, not through any change in fundamental factors. Work is on
towards changing standards of regulation and supervision internationally,
but these will take time to be implemented. In the meanwhile, we have to
point out that we are now tired of stressing on one issue - that such high
levels of expenditures, in India and abroad, are inflationary whatever way
one tries to handle it. Expectedly, the rational components of financial
markets recognize this problem and we are seeing significant upward
pressure on interest rates. This is a natural outcome of government over-
spending.
There is a possibility that to get around this problem this government may
try to borrow from abroad. And if that happens on a large enough scale,
the final degree of freedom that the government will have, would have been
used up. We therefore do not support such an initiative, despite its short
term advantages of keeping upward interest rate pressures under check.
Note that India has done something similar in the past (during the Rajiv
Gandhi years) when it borrowed internationally and spent on unproductive
activities. For a few years things looked very good, but pressures were
building. The ruling conglomeration in the post Rajiv Gandhi years just did
not have the ability to handle the pressures so generated. We all know the
final outcome.
At the end of the day we cannot spend this much without paying for it one
way or another. And it is better to pay by way of lower investment, higher
interest and prices, rather than macro-economic instability. But the first
best solution remains the same - don’t spend on unproductive activities
please.

3. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
PS. Please visit our new homepage for interactive time series graphs of
economic indicators http://www.indicus.net/
Sumita Kale and Laveesh Bhandari
8th September 2009, Indicus Analytics
Sumita Kale is Chief Economist, and Laveesh Bhandari is Director, Indicus
Analytics. They can be contacted at sumita@indicus.net and
laveesh@indicus.net.
Economic Growth
• GDP estimates for 2009-10 April-June quarter put growth at
6.1%, the first rise in six quarters.
• Manufacturing recovered to post a 3.4% yoy growth in the April-
June quarter, compared to the negative 1.4% in the previous
quarter.
• While mining turned in a high 7.9% growth and construction at
7.1% showed an upturn, the highest growth in this quarter was
recorded at 8.1% by the service sectors of trade, hotels,
restaurants, transport, storage and communications, and banking,
financial and insurance services.
• Agricultural sector growth at 2.4% reflects last years rabi output.
Production is expected to drop this year on monsoon deficit.
• With rainfall deficient by 26% by the end of August, 278 districts
were declared drought affected.
• While water levels in the 81 major reservoirs rose in August, the
overall levels are still lower than last year and the 10year averages.

4. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
• Sowing of cereals was down by 14.1% on 21st August, compared
to the previous year, while pulses had risen by 7.4%. Cotton
sowing had increased by 12.3%, sugarcane had reduced by 2.9%.
• In August, electricity generation was 9.76% higher than last year,
according to CEA’s provisional estimates.
• Markit PMI survey showed the fifth consecutive month of
industrial expansion, at 53.2 in August, the index was down from
the revised 55.4 level in July.
• Car and bike sales soared in August, the beginning of the festive
season – Maruti car sales up by 29%, Hyundai rose by 13%, Tata
Motors and Fiat by 26%, Mahindra and Mahindrar by 42%; Hero
Honda saw bike sales cross the 4 lakh mark in August, up 36%
from last year.
• Infrastructure sectors in July showed poor growth overall at 1.8%,
compared to 5.1% last year, with just cement and coal clocking
high growth at 10.6% and 9.6% respectively.
• Cement production was 10.63% higher in July than the previous
year, while sales were up by 9.92%.
• Railway freight traffic rose by 5.83% in July over the previous
year, while revenue generated by freight traffic increased by 4.77%
during the April- July period, compared to the previous year.
• Naukri Jobspeak index rose in July by 1.6% over June hiring in the
country.
• Telecom subscribers in the wireless segment rose by 14.38 million
in July, while wireline subscribers declined by 0.13 million,
bringing tele-density in the country to 41.08 at the end of July.
Read
V defies economic pessimists seeing L, U, W
Why growth in bank credit is low
Green growth of 8% by 2030 possible

5. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Inflation
• Provisional WPI inflation inched upwards in August, though still
negative at 0.21% for the week ending August 22nd. Upward
revisions continue for June estimates.
• Food is the prime driver for the price rise, and pressures are
expected to ease by winter once produce comes into markets.
• Sugar is the main worry with prices up 64% this year, and
production for the year ahead expected to be lower than last year
– while Indian output has been hit by less rain, Brazil’s sugar
output may be less due to heavy rains.
• Consumer price indices report double-digit inflation in July –
11.89% CPI IW and 12.90% for CPI AL – on a high 8-9% base of
last year, consumers have been caught in the grip of inflation.
• Spot prices of agri commodities on NCDEX have moderated
after 12th August, following a steep rise since 9th July. On
September 1st, the NCDEXAGRI stood at 7.65% higher than its
August 1st index level.
• While cement prices have fallen in August, steel prices are set for a
hike as demand grows.
• Brent crude spot price in Europe climbed up to $ 74.34 a barrel
on August 24th as signs of economic recovery across the world
came in.
Read
India sugar hits record high
Interest Rates
• The 10 year gilt yield moved above 7% in August and touched
7.4397% on September 1st.
• Interest rate futures have been launched again on NSE, bringing
more depth into the bond markets.
• With inflationary pressures in the system, high borrowings and
recovery of the economy, RBI is expected to raise rates by the year
end.

6. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
• Central banks worldwide have now reached the end of their rate cut
cycle, poised to raise rates depending on how the situation evolves
and are going slow, to avoid pinching the growth revival.
Read
Interest rate futures - a big step ahead
Cant judge path of potential rate hikes
Exchange Rates
• Exports were lower by 28.4% in July in dollar terms, compared to the
previous year while imports were lower by 37.1%
• Oil imports in the month of July were valued at 55.5% lower than the
previous year while non-oil imports fell by 24.5%.
• The trade balance for the period April-July 2009 stood at $ 28.913
billion, compared to $ 41.093 billion last year.
• FIIs made a net equity investment of $ 1.008 billion in the month of
August, compared to the outflow of $ 0.268 billion in August 2008.
• The rupee traded in the range of 47.54 to 48.98 to the dollar through
the month of August.
• Most major currencies have been rising against the dollar recently as
the surging US deficits have been a source of concern, while growth,
especially in Asia, Germany and France have exceeded expectations.
Read
Unconventional wisdom
Recommendations
Demand Curve: The rapidly growing stable markets of southern India
FE-Indicus Policy Series: Piped or handpumped
Demand Curve:NE India- small, but with great prospects ahead
Drought may stall food security act
Drought not likely to shrivel India’s growth

7. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Demand Curve: North India geography of growth
Paid location-based-services struggle to find favour
The numbers are misleading
Demand Curve: East India set to make swift progress
FE-Indicus Policy series: Why doesn’t Infosys innovate
Demand Curve: Rural markets help makers of consumer goods grow steadily

8. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
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