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Outside the Reserve Bank of India in Kolkata. Economic initiatives taken by India's government in recent months have helped to boost sentiment. Brent Lewin / Bloomberg News
Outside the Reserve Bank of India in Kolkata. Economic initiatives taken by India's government in recent months have helped to boost sentiment. Brent Lewin / Bloomberg News

India shows signs of turnaround

India Dispatch: India's economic growth, which is headed for a decade-low this year, may turn around and beat all expectations in 2013, according to Goldman Sachs.

India's economic growth, which is headed for a decade-low this year, may turn around and beat all expectations next year, according to the latest analysis by Goldman Sachs.

"There are lots of policy changes being discussed and the Indian stock market seems to be quite excited about something," said Jim O'Neill, the chairman of Goldman Sachs Asset Management.

"We think 2013 Indian GDP will probably exceed expectations, as there are indeed signs that policymakers might also positively surprise."

India's economic growth slowed to 5.3 per cent in the quarter between July and September, fuelling concerns that the country's GDP is set to fall to its lowest levels in a decade this year.

The economy has slowed as investment has faltered, while inflation levels remain high and the rupee has weakened.

But economic initiatives that have been taken by the government in recent months have helped to boost sentiment.

Hopes have risen that the government will push ahead with its reform programme, despite fierce criticism from opposition parties on the decision to open up the retail market to foreign supermarket chains. This has boosted Indian stocks, which have recently soared to their highest levels this year.

Other economists are also more positive on the outlook for India's economy.

"Beyond the near term, however, we expect a gradual recovery in growth assuming further traction on structural reforms and implementation of infrastructure related projects," said Leif Eskesen, HSBC's chief economist for India and Asean (Association of South East Asian nations).

"Both can help alleviate supply side constraints and slowly revive the investment cycle. A gradual stabilisation of global economic conditions next year should also help support the moderate recovery.

"We are getting close to the bottom, although we are most likely talking about a 'bathtub-shaped' recovery with some bottom scraping in coming quarters."

Interest rates, which have been on hold, are expected to be cut early next year.

Sonal Aurora, the managing director of Perfman HR, a recruitment consultancy in Mumbai, said that there were signs that activity was picking up after employers adopted a "wait and see" approach in recent months.

"In fact recruiters have a lot of work to do right now," said Ms Aurora. "I think the feeling in the Indian stock market and elsewhere is that we have survived the second recession. There's a lot of positivity around. The banking and financial services sector has been a little slow in hiring but I think they will also pick up in 2013."

Mr O'Neill explained that issues remain that are hampering India's growth potential.

"India in many ways remains the most complex of the four [Bric countries], with its demographics giving it the best potential GDP growth rate, but its inability to introduce effective policy change is a persistent source of disappointment," said Mr O'Neill.

"As we have warned many times, India scores the lowest GES [Growth Environment Score], our preferred measure for sustainable growth and productivity."

Fitch Ratings last week warned that India was still at risk of having its sovereign rating downgraded to junk status, with reforms likely to take time to filter through and recent economic data confirming the slowdown.


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