India: Rise In GDP

Narayan Bhatt (Times News Network) writes:

Global Insight, an international economic and business research firm, has predicted that in 2007 India will post a GDP growth of around 8% even as the global growth rate will decline to 3.3% from 3.9% in 2006.

It expects that the Federal Reserve will cut interest rates three times in 2007 to bring the Federal fund rates down to 4%. This would be good news for the local capital markets as it could lead to more FII inflows. Global Insight also expects oil prices to remain firm and the downward pressure on the US dollar to continue as the US economy will grow by about 2.2%.

These were among the top-10 economic predictions for 2007 made by Global Insight’s chief economist Nariman Behravesh. “India’s growth has also amazed - averaging more than 9% since January, though it should come in around 8% next year. Unlike China, much of India’s growth is consumer-led.

While India’s inflation rate is a little higher than China’s, there are very few signs of overheating in either economy,” says Mr Behravesh in a report. Finance and banking professor at the Indian Institute of Management, Ahmedabad, TT Ram Mohan told ET that India’s GDP could be in excess of 8% due to huge investments being made by the industry.

“The Indian economy can absorb crude oil prices of up to $60 per barrel. The rupee will continue to appreciate against the US dollar in the long-term. Indian exporters have adapted well to the appreciating rupee by cutting down costs further,” says Mr Mohan. A slowdown in the US economy could, in fact, lead to more outsourcing to India.

“Reduction in Fed rates and weakening of dollar would lead to more FII inflows into emerging markets. While some part of it will come to India, the quantum will depend on the valuations prevailing in our equity markets,” says Naresh Kothari, head of institutional equities, Edelweiss Securities.

“Whether the rest of the world has become immune to US cycles (even a mild one) is one of the larger uncertainties about the outlook for next year. Even if the rest of the world follows the US lead, the deceleration worldwide will be relatively mild,” says the Global Insight report.

More info @ http://economictimes.indiatimes.com/articleshow/808986.cms