Assocham Business Barometer

(ABB)

“GDP Growth Forecast 2009-10”

June 2009

Prepared by –
Swati Gupta
Assocham Research Bureau

The Associated Chambers of Commerce and Industry of India

Contents

Sno. Topic Page No.

1 Introduction and Methodology 2

2 Status of the Indian economy 3

3 Survey Results 8

4 Growth Forecast for the year 2009-10 10

5 Annexure 11

1
 Introduction

GDP growth is the prime indicator of the health of an economy and provides testimony to the
progress made by different business spheres. In order to provide a true picture of the
prevailing business sentiments in the economy, Assocham Research Bureau comes out with a
survey based GDP forecast, revised periodically.

The Survey covers a wide section of industry ranging from small and middle scale and to
well-diversified conglomerates. A section of respondents also include experts in the field on
Indian economy.

Methodology

The ABB forecast is based upon the factors which influence the growth rate of the Indian
GDP. A group of eight factors was taken and respondents were asked to mark their choice for
the relevance of each factor in influencing the GDP growth rate. The survey further finds out
the degree to which each factor impacts the GDP growth and the prospects for these GDP
determinants in light of the current economic scenario.

2
 Status of the Indian Economy

In view of the world economy facing its worst recession since 1930s Great Depression, the pace
of growth of the Indian economy also witnessed a sudden jolt from 9 per cent growth rate in
the financial year 2007-08 to 6.7 per cent in the period 2008-09. While India continue
retain its position of second fastest growing economy in a world revered internationally for its
sound policies and economic structure, the country has lost out large with the onset of recession
in major advanced countries.

Agriculture

With the good harvest recorded in the season, the foodgrain production in the crop year ending
June 30 is expected to be around 229.85 million tonne, up 0.9% from an earlier estimate
announced in February. The government had set a target to produce 233 million tonne of
foodgrains in 2008-09 season. The total foodgrains production has been pegged higher at
229.85 million tonnes from 227.88 million tonnes in the second advance estimates. In the
previous season, India produced a record 230.78 million tonnes of foodgrains.

Rice production is projected at record 2.7 per cent rise with production of 99.37 million tonne,
up from 98.89 million tonnes pegged in the second advance estimate. The previous record was
96.69 million tonnes of rice in 2007-08 season.

Pulses production has been revised downward at 14.18 million tonnes from 14.25 million tonnes
in the second advance estimates. Pulses output stood at 14.76 million tonnes in 2007-08 season.
However, wheat output in 2008-09 is expected to be around 77.63 million tonnes, down from
the second estimate of 77.78 million tonnes. In 2007-08 season, the country had produced a
record 78.57 million tonnes of wheat.

The production of coarse cereals has been revised upward at 38.67 million tonnes from the
earlier 36.96 million tonnes. Coarse cereals output was 40.76 million tonnes in last season.

The third advance estimate has pegged the oilseeds production at 28.12 million tonnes, which is
2.16 million tonnes more than what was estimated in February. However, the output is still
lower than 29.76 million tonnes in 2007-08. Among oilseeds, the production of soyabean,
groundnut and mustard has been revised upward.

3
Industry – The IIP growth rate on monthly basis have started declining from October 2008
onwards. The six month average growth in IIP fell from 5 per cent in the first half of the financial
year 2007-08 to -0.04 per cent in the second half.

IIP Growth Trend

12

10
9.52

8
Growth rate (in per cent)

6.18 6.22 6.39

6 6.03
5.47 5.44

4.37
4

2.53
2 1.69

0.39
0 0.11
-0.25
-0.72
De 0 8
Fe 8

08

Fe 9
M 8

Ap 8

M 9
9
Au 08

Se 08

O 8

Ja 8
M 08

Ju 8

No 8
0
-0

0
-0
0
0

0
-0

0
-0
v-
l-
n-

n-

n-
b-

b-
g-
p-

c-
r-
ar

ar
ay

ct
Ju
Ja

-2 -2.3

Months
-4
Year-on-year growth
Rate (in per cent)

Services

Civil Aviation – The cumulative air passenger traffic has declined by 6.3 per cent in during
April 2008 – January 2009. The domestic passenger traffic has dipped by 11.1 per cent and
cargo traffic has declined by 2.9 per cent. However, the international traffic has shown growth.
The international passenger traffic has shown 7.7 per cent increase and the cargo growth has
been 2 per cent.

Railways –The growth rate in the railway freight traffic has slowed down from the October
month of the year 2008 and been ranging between -0.9 per cent to 3 per cent since then. For the
4
period April to February 2008-09, the freight traffic grew by 5 per cent as compared to 9 per
cent growth a year ago.

Monthly Railway Freight

Traffic
Million per cent
Period Tonnes change
8-Feb 70.63 14.5
Mar-08 78.48 8.4
Apr-08 67.69 10.9
May-
08 69.95 9.4
Jun-08 65.27 7.8
Jul-08 67.73 9.5
Aug-08 65.27 5.4
Sep-08 65.89 8.2
Oct-08 66.08 -0.1
Nov-08 66.62 1.3
Dec-08 72.15 3
Jan-09 74.55 2.9
Feb-09 70.02 -0.9

Telecom users

Telecom has been one of the very few sectors which has remained unaffected from the recession.
The country's wireless subscriber base has crossed the 400-million mark in April this year with
an addition of 11.9 million new users in the month.

About 11.90 million wireless (GSM, CDMA and WLL(F)) subscribers were added in April 2009
as against an addition of 15.64 million during the previous month, taking the total subscriber
base to 403.66 million. The total telecom (wireless and wireline) subscriber base stood at 441.47
million at the end of April 2009 as against 429.72 million in March 2009. The overall tele-
density has reached 37.94 at the end of April as against 36.98 in March 2009.

Cargo traffic – The cargo traffic has dipped by 5.2 per cent in the month of February, it is a dip
of 5.2 per cent. During the period April to February 2009, the cargo traffic growth was reduced
to 2.2 per cent from 12.2 per cent in the year 2007-08.

5
Foreign Trade –

While the fall in experts began in the month of October 2008, the rate of decline became steeper
in last three months of the fiscal 2008-09. Overall growth for the financial year was mere 3.4 per
cent. The import growth has turned negative as well, from the month of January 2009. The
annual growth rate for the fiscal 2008-09 was 14.3 per cent as compared to 27 per cent growth
in the FY2007-08. Decline in the imports also reflect the reduced consumption in the domestic
economy.

The worst hit segments in the fiscal 2008-09 were engineering goods, gems and jewellery,
chemicals, plastics, marine products, tea, tyres, handicrafts, cotton yarn, fabrics, jute products,
carpets and leather exports.

A forecast by World Trade Organization states that the collapse in global demand brought on by
the biggest economic downturn in decades will drive exports down by roughly 9% in volume
terms in 2009, the biggest such contraction since the Second World War. “The contraction in
developed countries will be particularly severe with exports falling by 10% this year. In
developing countries, which are far more dependent on trade for growth, exports will shrink by
some 2%-3% in 2009”, the report says.

Monetary aggregates

a) Interest rates down – The repo rate has touched the peak rate of 9 per cent by July 29,
2008, after which it was reduced from October 2008 onwards. It was slashed by 325 basis
points since then and is currently at 4.75 per cent. The reverse repo rate at the peak rate
of 6 per cent was further reduced to 3.25 per cent within the period of five months.

b) Credit to the industry – The credit growth rate to the industry including small, medium
and large sized industries have remained at the same level (25.8 per cent) while the
growth in personal loans and service sectors has declined.

c) Money supply – the growth in Money Supply as measured by M4, has declined in the
financial year 2008-09 to 18.3 per cent from 21 per cent in the financial year 2007-08.

6
Inflation – Inflation has been showing a declining trend from the last 33 weeks. The producer
price inflation measured by the WPI has been nearing zero value from the month of March
onwards.
WPI -Inflation Rate

14
12
Inflation Rate

10
8
6
4
2
0
9/13/2008
9/27/2008
10/11/2008
10/25/2008
11/8/2008
11/22/2008
12/6/2008
12/20/2008
1/3/2009
1/17/2009
1/31/2009
2/14/2009
2/28/2009
3/14/2009
3/28/2009
4/11/2009
4/25/2009
Week ended

WPI -Inflation Rate

Investments – According to the Assocham Investment Study, the corporate India has lined up
Rs. 13.6 lakh crore as their investment outlays for next three to four year period. The sectors
which have topped the investment charts include Real estate (20.7 per cent share), Power (15.38
per cent), Energy (13.98 per cent), infrastructure (6.96 per cent).

International economies

According to the International Monetary Fund (IMF), the world economy would contract
between 0.5 and 1 per cent in 2009 and the recovery could come in the first two quarters of
2010.

Growth Rates (in per cent)

2008 2010 2009
World 3.2 1.9 -1.3
Output
US 1.1 -2.8 0.0
Euro 0.9 -4.2 -0.4
Area
UK 0.7 -4.1 -0.4
Source: Overview of the World Economic Outlook Projections

7
 Survey Results

◊ There was divided opinion about the present state of the economy. While 50 per
cent of the surveyors said that the present state of the economy is moderate, the
rest half said that the economy is in good position.

◊ The new government formed at Centre is expected to fast track the long pending
policy reforms. About 42 per cent of the respondents said that policy reforms
would cast large impact on the GDP growth while another 40 per cent believed that
it is to have only a moderate impact. A huge majority of 83 per cent of those
participated in the survey said that government would be able to bring significant
reforms this year.

◊ The economy has witnessed a serious dip in the consumer confident as the last
year period was marked by job loses, financial market downturn etc. However the
ABB Survey found optimistic conditions prevalent regarding the consumer
sentiments. About 91.7 per cent of the respondents believed that there are good
chances of improvement in consumer sentiments in the following months. Also, 58
per cent of the respondents said that consumer sentiment would have significant
impact on the GDP growth.

◊ Since 58.3 per cent of the respondents felt that money market conditions have
large impact on the GDP growth rate, the Survey analysed five factors which
determine the money market conditions. There were – 1) Saving Rate 2)
Consumer expenditure 3) FIIs 4) lending rates 5) External Commercial
Borrowings.

◊ About 66 per cent of the surveyors said that even as the economy is slowing down
and the deposit rates are slashed by the banks, there would be no significant
reduction in the savings rate of the consumers.

◊ Around 58.3 per cent of the respondents said that the consumption expenditure
would be higher in the financial year 2009-10 than the previous year, even as the
inflation rate has come down.

◊ 60 per cent of the ABB respondents felt that behavior of FIIs would be favorable
towards the Indian stock market this year and 25 per cent stated that FIIs would be
highly favorable towards Indian markets.

8
◊ The majority of the respondents (62 per cent) stated that there are moderate
chances of further reduction in interest rates by the RBI this year. One third of the
ABB participants felt that there are low chances of reduction in policy rates.

◊ Around 65 per cent of the respondents felt that the external commercial
borrowings in the current fiscal would rise as compared to the previous year.

◊ Majority of 75 per cent of the respondents felt that world economic performance
pose a large impact on Indian growth rate.

◊ As many as 42 per cent of the ABB surveyors believed that rate of improvement in
the economic conditions in the US and Europe would be moderate during the
course of the year. About 40 per cent felt that the pace of economic revival will
remain slow in US and Europe.

◊ 40 per cent of the respondents felt that isolation of Rural India from the impact of
recession has a huge impact on the GDP growth rate while 45 per cent felt that its
impact would be moderate.

◊ 75 per cent of the ABB surveyors believed that fiscal stimulus provided by the
government would impact the GDP growth rate.

◊ 42 per cent of those surveyed by the ABB felt that the pace of corporate Indian
investment would increase in the financial year 2008-09 as compared to the
previous year. Another 40 per cent believed that the investment pace would
remain same.

◊ A good number of 83 per cent of the respondents felt that government spending
would be better channelised towards economic development this year.

9
 Growth Forecast for the Financial Year 2009-10

The ABB Survey on GDP forecast has shown 36 per cent improvement in the economic
growth prospects. This translates to 0.82 percentage points rise in the GDP growth rate;
hence we expect the Indian economy to record a growth rate of 7.2 per cent for the period
2009-10.

The most significant factors which would play key role in driving the economic growth higher
includes improvement in consumer sentiment, Rural India being unaffected from the global
recession and the policy reforms ought to be taken by the government. The respective
weights assigned to these parameters in GDP growth determination were consumer
sentiment (19.67 per cent), Rural India (8 per cent) and Policy reforms (11.84 per cent).

The factors which continue to inhibit the economic growth rate from pacing up are the poor
state of the world economy and the money market conditions. The performance of the world
primarily driven by US and Europe has been given 19.4 per cent weightage among the factors
influencing the GDP growth. The money market conditions have been assigned the weight of
12.19 per cent.

The agriculture sector is expected to record the growth rate of 3.5 per cent as good
monsoons, better crop prices and upward revision of the crop forecast has ensured a healthy
growth rate for the agriculture sector.

The Industry sector which was reeling under pressure due to high interest rates, reduced
demand and global recession is expected to record the growth rate close to 4.6 per cent in the
fiscal 2009-10.

The services sector, though has slowed down during the financial year 2008-09, remains the
most vibrant sector of the Indian economy. With the improvement in consumer sentiment,
increased government spending and reforms expected, the services sector are estimated to
incur 9.7 per cent growth rate in the period 2009-10.

ABB Growth Forecast for the Year 2009-10

Sectors Growth
Rate (in per
cent)

Agriculture 3.5
Industry 4.60
Services 9.7
GDP 7.2

10
 Annexure

Fiscal
2008- 2007-08 2006-
Industry 09 07
Agriculture, forestry & fishing 1.6 4.9 3.8
Mining & quarrying 3.6 3.3 5.7
Manufacturing 2.4 8.2 12
Electricity, gas & water supply 3.4 5.3 6
Trade, hotels, transport & communication 9.0 12.4 11.8
Financing, insurance, real estates and business
services 7.8 11.7 13.9
Community, social & personal services 13.1 6.8 6.9
Construction 7.2 10.1 12
GDP at factor cost 6.7 9.0 9.6

Quarterly estimates of GDP for 2008-09 (at 1999 – 2000 prices) % change

Industry Q1 Q2 Q3 Q4
Agriculture, forestry & fishing 3.0 2.7 -0.8 2.7
Mining & quarrying 4.6 3.7 4.9 1.6
Manufacturing 5.5 5.1 0.9 1.4
Electricity, gas & water supply 2.7 3.8 3.5 3.6
Trade, hotels, transport & communication 13.0 12.1 5.9 6.3
Financing, insurance, real estates and 6.9 6.4 8.3 9.5
business services
Community, social & personal services 8.2 9.0 22.5 12.5
Construction 8.4 9.6 4.2 6.8
GDP at factor cost 7.8 7.7 5.8 5.8

11
Foreign Trade
India’s Exports
Annual
Exports growth
(in US (in per
Month million) cent)
Mar-08 17252.23 34.14
Apr-08 15961.9 45.74
May-08 15583.73 27.63
Jun-08 16434.47 38.44
Jul-08 16902.94 35.71
Aug-08 16115.27 27.76
Sep-08 13828.73 11.03
Oct-08 12681.54 -13.07
Nov-08 10206.34 -20.06
Dec-08 12152.6 -5.24
Jan-09 11423 -22.39
Feb-09 10932.83 -27.68
Mar-09 11516.1 -33.25
April-March
2008-09 168704 3.4

India’s Imports
Change
Imports (in per
Period (in cent)
Mar-08 9513400 26.19
Apr-08 9906887 32.47
May-08 10972880 39.6
Jun-08 10916859 37.91
Jul-08 12269738 66.26
Aug-08 12445895 54.19
Sep-08 12028588 75.45
Oct-08 10851060 30.35
Nov-08 9734774 21.52
Dec-08 8823990 20.87
Jan-09 7959022 -10.28
Feb-09 6460263 -21.58
Mar-09 7971700 -16.21
FY 2008-
09 14.3

12
Questionnaire

Q) How do you see the state of the economy at present?

o Very Good
o Good
o Moderate
o Poor
o Very Poor

Q) In what time period do you expect the Indian economy to grow at the increased pace?

o Three months
o Six months
o Nine Months
o One year
o More than a year

Please highlight you choice for each of the eight factors listed in the table.

Do you think the listed factor

has any impact on GDP
growth rate? If yes, then to what extent?
Sno. Factors Yes No Cant say Large Moderate Small
1 Policy Reforms
Consumer
2 sentiment
Money Market
3 conditions
Rural India being
unaffected by the
4 world recession
Performance of the
world economy, US
and Europe in
5 particular
6 Fiscal stimulus
Investment
7 announcements
13
 Government
8 Budgeted Spending

Q) Do you think government would be able to bring about significant reforms this year?

o Yes
o No
o Cant say

Q) Do you see the chances of improvement in consumer sentiments in the following months?

o Yes
o No
o Cant say

Q) Considering the fact that the economy has been slowing down and the deposits rates are
slashed by banks; do you expect the savings rate of the consumers to reduce?

o Yes
o No
o Cant say

Q) Do you see higher expenditure on the consumption than the previous year during the period
2008-09 in the country?

o Yes
o No
o Cant say

Q) How do you see the behavior of the foreign institutional investors towards the Indian stock
market during the year?

o Highly Favorable
o Favorable
o Neither favorable nor unfavorable
o Unfavorable
o Highly unfavorable

14
Q) The present repo rate and reverse repo rate are at the level 4.75 per cent and 3.25 per cent.
According to you, what are the chances that RBI would further reduce the interest rates during
the financial year to boost the economy?

o Very High
o High
o Moderate
o Low
o Very Low

Q) What is your expectation regarding the external commercial borrowings of the corporate
sector for the year 2008-09 in comparison to the last year?

o Rise
o Fall
o Remain same

Q) Do you expect the government would use the fiscal incentives to stimulate the economy?

o Yes
o No
o Cant say

Q) What do you think about the pace of investments by the corporate India would in the
financial year 2008-09 as compared to the previous year?

o Increase
o Decline
o Remain Same

Q) Do you expect the government spending to be better channelised towards economic

development this year?

o Yes
o No
o Cant say

Q) What would be the rate of improvement in the economic conditions in the US and Europe,
which are currently under recession, during the course of the year?

15
o Very fast
o Fast
o Moderate
o Slow
o Very slow

16