Friday, June 01, 2007

Boom, boom.... Indian economy powering ahead

The Indian economy grew at 9.4% in 2006-07, bettering the earlier projection of 9.2%. China grew at 10.6%, so the gap is narrowing.

Growth in the second half was slower,8.9%, compared to 9.9% in the first half. The services sector, including finance, real estate and transport, slowed down.That is good news because it means that the central bank's tightening is beginning to bite and the economy may be spared further increases in interest rates. For the coming year, forecasts are in the range of 8-8.5%.

FDI for the financial year (adjusted for one-off items) was $14.1 bn. The commerce ministry has set its sights on FDI of $30 bn for 2007-08. As a percentage of GDP, FDI of 1.4% is below the 3% in other developing countries. China received $69.5bn, Russia $28bn and Brazil $16bn in FDI in 2006, according to Morgan Stanley.

So, we are slowly catching up on FDI but the quality of flows is an issue as I have pointed out earlir. FDI figures include private equity and venture capital. FDI in manufacturing in the 12 months ended January 2007 was a mere $1.5 bn, down from $1.8 bn the previous year. More FDI is going into real estate than into manufacturing.

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