Notwithstanding all the issues with using GDP as the main signal of economic prosperity (not to mention the difficulty in accurate measurement) it is the end all, be all for government officials and market watchers. India just checked in with an impressive 7.9%, which might mean game over for “extraordinary” stimulus. No such problems domestically. Rather than focusing on the actual figures which have many flaws, the key is relative performance among countries….
Again, I ask all those who cried to the heavens on CNBC for all of 2008 that using the FIFO accounting method (first in, first out! 1st grade analysis at its best) meant the US will recover first and lead the world out of the mess it created… to show up and say “I was obviously wrong”. Rather than admitting any such thing, most likely you will see them on the cable channel in the present saying how obvious it was that Asia would show the real growth and rebound first “as we all knew”. Ahem.
As for India, keep in mind unlike Bubble Ben / Alan – the central banker in India actually presses hard on banks to act responsibly (on a relative basis) and pushes hard on bubbles ahead of time. [Dec 28, 2008: NTY – How India Avoided the Crisis] The same bubbles Greenanke (they are one and the same man in temrs of policy) claim they cannot even see, much less fight.
He is also a man who understands his policies can destroy the lower economic classes in a society, something our leaders could care less about; we have the banking class to take care of (priority #1) here.
India’s central bank Governor Duvvuri Subbarao described inflation as a “regressive tax,” justifying his steps yesterday to start withdrawing the monetary stimulus as price pressures build. “As far as public policy is concerned, it has a commitment to insulate the poor from inflation – it’s the prime consideration for the Reserve Bank of India and the government.”
India’s economy expanded at the fastest pace in 1 1/2 years as manufacturing jumped, giving the central bank room to withdraw more stimulus measures. Gross domestic product grew 7.9 percent in the three months to Sept. 30 from a year earlier after gaining 6.1 percent in the previous quarter, the statistics bureau said in New Delhi today. That was more than all estimates in a Bloomberg News survey of 22 economists, where the median forecast was 6.3 percent.
Indian shares and the rupee extended gains while bond yields rose following the GDP report, which raised expectations that Governor Duvvuri Subbarao may soon act after he spoke last week of the need to remove some “unconventional” pro-growth policies.
The central bank started to withdraw monetary stimulus on Oct. 27 by ordering lenders to keep more money in government bonds.
“This is a surprising number,” said Sonal Varma, a Mumbai-based economist at Nomura Securities Co. “It will make it easier for the Reserve Bank of India to exit from the emergency low interest rate regime adopted last year.”
Manufacturing rose 9.2 percent last quarter from a year earlier, the biggest advance since June 2007, according to today’s report. Trade, transport and communication services grew 8.5 percent, the fastest pace in a year. Agriculture gained 0.9 percent, the least since December 2008. (keep in mind the poor monsoon season we highlighted a few times this summer).
Car sales climbed at a 33.9 percent annual pace in October and cellular operators, led by Tata Teleservices Ltd., added 16.6 million new subscribers. Lodha Developers Ltd., an Indian property company planning an initial share sale, said its home sales may climb about threefold this fiscal year as low interest rates encourage spending.
To steer India’s $1.2 trillion economy through the worst global financial crisis since the 1930s, Subbarao kept the central bank’s key reverse repurchase rate at a record-low 3.25 percent since April. Government spending and tax cuts took the value of stimulus measures to 12 percent of GDP. That’s helped the economy recover and the benchmark Sensitive index on the Bombay Stock Exchange to climb about 72 percent this year.
Inflation forecasts rising…
Inflation pressures are building as economic growth quickens and after the weakest monsoon rains since 1972 hurt farm output, pushing up food costs. The central bank forecasts inflation of 6.5 percent by March 31 from 1.34 percent in October and 0.5 percent in September. During 2008, the rate rose to almost 13 percent.
Food inflation, which has climbed to 15.58 percent, is a politically sensitive issue in a nation where the World Bank estimates that three-quarters of the population live on less than $2 a day. Opposition lawmakers said last week that the government is obsessed with growth, allowing prices to spiral to the detriment of the poor. (never any such debates in the US, ironic… )
“We see inflation risks emerging and expect interest-rate hikes from January 2010,” said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd. in Singapore.