Foreign Institutional Investors expect boom in Indian economy
Source : MI
Sep 6, 1999, 8:09:28 AM
Foreign Institutional investors say they expect India's fledgling economic recovery to turn into a full-boom in the coming months with elections starting on Sunday widely expected to bring a majority government to power.
"All indications are that India will have a stable government and the agenda of economic reform will pick up," said P.K. Basu, Singapore-based chief economics for Southeast Asia at Credit Suisse First Boston. Opinion polls tip a coalition led by the ruling Bharatiya Janata Party to win parliamentary majority.
"We've seen a cyclical rebound in the Indian economy. Any stable government with a coherent set of policies will set the stage for a fair amount of growth over the next few years," said Arjun Divecha who managed $1.3 billion in emerging market funds at Grantham Mayo Van Otterloo in Berkeley, California.
The BJP government's projection of seven percent growth in Gross Domestic Product in fiscal 1999/2000 is within target, with several macro-economic factors converging to provide the necessary push for a sharp economic upswing, analysts said.
An unusually good harvest this year has put money in the pockets of farmers who have pushed up demand for consumer and durable goods, helping lift the country from a three-year economic slowdown. Bumper crops are holding down prices of agricultural goods, comprising about a third of the economy.
That in turn has helped keep a lid on inflation. Both consumer and wholesale price inflation, at 3.2 per cent and 1.5 per cent respectively, are at nearly two decade lows. Foreign exchange reserves are at $33 billion.
That will give the next regime a little room to lower relatively high short-term interest rates and spur infrastructure and fixed business investments, analysts said. The prime-lending rate of public sector banks ranges between 12 and 13.5 per cent.
"Agricultural production has provided a sort of trigger, but going forward, the key driver is going to be infrastructure," said Ridham Desai, strategist at JM Morgan Stanley in Bombay.
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