Highlights • The economy has bottomed in India and internationally • Expect a very slow turnaround from now but numbers look bad till Q3 ‘09 • Manufacturing recovery in India commences • Stock markets rally as if worst is over – but too bullish for our liking • G20 meet says the right things, adds value to the IMF • Inflation under wholesale prices falls dramatically; consumer price inflation to follow in coming months • Rural markets holding up so far in India, need support from weather going forward. India: Kal, aaj aur kal India was taken back by shock last September, as it was hit by the global crisis and events proved the decoupling hypothesis wrong. While the pendulum swung immediately in the other direction and capital pulled out, exports shrunk, the capital account went into a deficit for the first time since 1998-99, just about as suddenly, the situation appears to be changing. Words like ‘green shoots’, ‘end of fear’, etc. have begun to come back on the scene even as manufacturers begin to look less shell-shocked as before, the stock market rallies and the rupee gains strength. Some hard numbers to support this reversal in sentiment - the JP Morgan Global PMI indices(reference given below), show that Indian manufacturing has contracted the least and has swung back the fastest to touch a 49.5 index in March. Of course, it will take another few months to show a clear trend but the bottoming off seems to have happened. This only supports our assertion that low or falling prices after a bubble are a signal of rationally functioning markets and therefore good for the economy. This of course does not in any way mean that all production numbers will just as suddenly turn positive or double digit – they will still look bleak for another quarter or so. What has happened is that just as a while back, things were looking worse than expected, now they are looking better than the worst. It is all relative of course, but the fear pychosis seems to have gone. There are still so many problems to overcome – the fiscal deficit is just one of them. Borrowings are slated to go up even further, and though the RBI Governor has asked markets not to be ‘unduly worried’, it is difficult to see how markets can take this in their stride serenely. While some banks have reduced their rates and it looks now like an all out public vs private sector bank fight on this one, the RBI rate cuts are not being passed on sufficiently. This, by the way, is not a problem unique to India and its banking system - Australia, Indonesia, Israel all report reluctance from the banking system to pass on the cuts. Credit growth has also significantly reduced as the economy slumped, and this has hit firms very hard. Risk aversion is of higher priority in bank portfolios now, the days of easy credit are over, companies need to realign their plans in these new conditions – the period of ‘painful adjustment’ is on. And for some, specially the small and medium sector, and more so those that were expanding aggressively, there will be very painful times ahead.

1. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
The Emerging Economy
– Monthly Newsletter from Indicus
Analytics
8th April 2009
Highlights
• The economy has bottomed in India and
internationally
• Expect a very slow turnaround from now but
numbers look bad till Q3 ‘09
• Manufacturing recovery in India commences
• Stock markets rally as if worst is over – but too
bullish for our liking
• G20 meet says the right things, adds value to
the IMF
• Inflation under wholesale prices falls
dramatically; consumer price inflation to follow
in coming months
• Rural markets holding up so far in India, need
support from weather going forward.
India: Kal, aaj aur kal
India was taken back by shock last September, as it was
hit by the global crisis and events proved the decoupling
hypothesis wrong. While the pendulum swung
immediately in the other direction and capital pulled out,
exports shrunk, the capital account went into a deficit for
the first time since 1998-99, just about as suddenly, the
situation appears to be changing. Words like ‘green
shoots’, ‘end of fear’, etc. have begun to come back on

2. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
the scene even as manufacturers begin to look less shell-
shocked as before, the stock market rallies and the rupee
gains strength. Some hard numbers to support this
reversal in sentiment - the JP Morgan Global PMI
indices(reference given below), show that Indian
manufacturing has contracted the least and has swung
back the fastest to touch a 49.5 index in March. Of
course, it will take another few months to show a clear
trend but the bottoming off seems to have happened. This
only supports our assertion that low or falling prices after
a bubble are a signal of rationally functioning markets
and therefore good for the economy.
This of course does not in any way mean that all
production numbers will just as suddenly turn positive or
double digit – they will still look bleak for another quarter
or so. What has happened is that just as a while back,
things were looking worse than expected, now they are
looking better than the worst. It is all relative of course,
but the fear pychosis seems to have gone.
There are still so many problems to overcome – the fiscal
deficit is just one of them. Borrowings are slated to go up
even further, and though the RBI Governor has asked
markets not to be ‘unduly worried’, it is difficult to see
how markets can take this in their stride serenely. While
some banks have reduced their rates and it looks now like
an all out public vs private sector bank fight on this one,
the RBI rate cuts are not being passed on sufficiently.
This, by the way, is not a problem unique to India and its
banking system - Australia, Indonesia, Israel all report
reluctance from the banking system to pass on the cuts.
Credit growth has also significantly reduced as the
economy slumped, and this has hit firms very hard. Risk
aversion is of higher priority in bank portfolios now, the
days of easy credit are over, companies need to realign

3. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
their plans in these new conditions – the period of ‘painful
adjustment’ is on. And for some, specially the small and
medium sector, and more so those that were expanding
aggressively, there will be very painful times ahead.
The launch of the world’s cheapest car brought the Tatas
and India back into the spotlight worldwide but also
triggered off sharp debates: prospective traffic congestion
alarms some while others are thrilled and wonder why
cars should be just the privilege of the rich. The larger
point actually is better mass public transport and urban
planning. Here actually the government scheme to buy
buses under the JNNURM must be lauded, we wish there
were more such initiatives under the fiscal stimulus
packages.
Other main issues that never seem to get resolved are
infrastructure, education and healthcare..all sectors that
constrain growth in our country. Remains to be seen
whether the next government can move things along a
fast track.
P.S. We have started a blog with contributions from
Indicus and guest authors too, do join us at
www.indicus.net/blog
Sumita Kale and Laveesh Bhandari
8th April 2009, Indicus Analytics
Dr. Sumita Kale is Chief Economist, and Laveesh
Bhandari is Director, Indicus Analytics. They can be
contacted at sumita@indicus.net and
laveesh@indicus.net.

4. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Economic Growth
• IIP shows negative growth for second month in
succession, -0.5% in January 09, with
manufacturing showing growth at a negative
0.8%.
• More interestingly, the IIP for December
showed an upward revision of almost 2
percentage points with growth moving from the
provisional –2.0% to –0.6%. The final figure will
be released after another month, though.
• Electricity generation shows a big boost in
March, growing provisionaly at 5.87%,
compared to the 3.64% last March, though this
is still about 7% less than the targeted
generation.
• Cement production grew by 8.6% while sales
grew by 8.7% in February.
• Auto sales did well again in March, M&M
reported 11.3% growth in domestic sales
though exports slumped, Maruti’s Alto did its
highest ever sales, crossing the 20,000 mark for
the 11th time, a record for any car in India.
• Telecom continued its high performance, adding
13.42 million wireless subscribers in February,
taking tele-density to 35.65% in India.
• Air passenger traffic fell by 11% while freight
fell by 8.2% in January 2009.
• Ports handled 2.13% more container cargo in
2008-9, the busiest port JNPT had volume
falling by 11% in the same year.
• Rail freight earnings rise 12.02% in April-
February period, continues decline in February.
• Water in 81 major reservoirs have dipped to
less than last 10 years average levels, with
scanty or deficient rainfall till mid- March and
higher than temperatures, the water situation

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needs to be monitored carefully. As yet, no
alarm to be sounded on the agri front.
• FAO indicates global cereal production will not
match last years record. Prolonged dry weather
impacting crops in Asia and South America.
Read
JP Morgan March Global PMI Report shows slightly slowing
contraction
Turning around cautiously
Wall street trades Zegna for denim, tool belts
Inflation
• Wholesale Price Index inflation crashes to less
than 1% in March provisionally, even though there
is the index has risen in the last two reported
weeks for March.
• Revisions to January data continue to be
downward: last March revisions were to the order
of almost 2 percentage points in inflation.Upward
revisions confirm inflationary pressures in the
economy.
• Consumer Price Indices have high inflation
numbers, CPI IW at 9. 63% and CPI AL at 10.79%
for February.
• Crude oil prices have been on an uptrend since
December lows of less than $35 a barrel. The
steep crash since July has been stopped, it
appears that this is the bottoming out of the crude

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market – March levels ranged between 42 and 51
dollars a barrel.
• Sugar prices have remained high in India, up 30%
since October 08, even as government allows
sugar mills to import raw sugar at zero duty till
September, but had not allowed imports of refined
sugar at zero duty yet.
Read
Asymmetry in commodity prices
Interest Rates
• With the highest even government borrowing up
ahead, 10 year benchmark Gsec yield has ranged
in the higher zone climbing up since early January
from the 5.1 levels to crossing the 7% mark on
some days in March.
• RBI Governor tells markets not to be ‘unduly
worried’ even as government borrowings are at
their peak.
• The 10 year benchmark has now changed to the
6.05% gilt maturing in 2019.
• ECB disappointed markets with a 25 basis points
cut, less than expected; yet rates are at an
historic low at 1.25%.
• Bank of England expected to keep rates steady
now at 0.5%, the lowest in the Bank’s 315 years
history.
• World over central banks note that rate cuts are
not being passed on by banks, policy effectiveness
limited.

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Read
Safe bonds can bite back
Exchange Rates
• Exports fell again in February, registering a 21.7%
fall in dollar terms and 3% in rupee terms.
Imports fell by 23.3% in dollar terms and 4.4% in
rupee terms in February over the same month last
year.
• Both oil and non-oil imports showed negative
growth in February, at 47.5% and 10.2%
respectively in dollar terms, reflecting the fall in
crude prices and the lower volume of demand in
the economy
• The trade deficit stood at $115.1 billion for the
period April-February, as compared to $82.2 billion
for the same period in the last year.
• ECB/FCCB funds in February amounted to $452
million for 31 firms, in February 2008, 38 firms
brought in funds worth $862 million.
• The Balance of Payments data released for Q3
showed highest current account deficit since 1990
at $14.6 billion as exports plunged with the global
crisis.
• Q3 also saw the first capital account deficit since
Q1 of 1998-99 with net outflows in portfolio
investment, short term trade credit and banking
capital.
• China made a call for replacing the dollar with
SDRs as the international reserve currency.
• Dollar has been losing value in the past one week
as sentiment turns away from risk aversion and

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emerging markets seem attractive in the near
term.
• The rupee fell to a low crossing 52 to a dollar in
early March, and has since recovered some of its
losses, crossing 50 to a dollar level, its highest in
more than a month as capital flowed back into the
stock market.
Read
Dethroning the dollar – what if?
China and the dollar- having it both ways
Heterogeniety in rural markets – Indicus-Mint series
Election fever: Indicus works with Google to generate
online elections center
ET-Indicus election special:Dip in poverty levels boosts
UPA chances
Spending with a difference
Inflation rises to 0.31%
Its disinflation, not deflation that we are facing now

9. Indicus Analytics, An Economics Research Firm
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