Highlights o Growth surging ahead, now estimated at about 7.2 percent for 2009-10 o Upward growth momentum to continue into this quarter and beyond o All real investment indicators continue their rise – high government expenditures crowding out investment only marginally o Inflation soaring in CPI, set to abate with rabi crop arrivals in another month o Government friendly RBI not keen to up the interest rates – but keeping close watch o Employment expectations moderate, slight turnaround in organized sector o Fiscal deficit crucial indicator for inflation and growth ahead The announcement of growth figures for 2009-10 at 7.2 percent where all sectors are expected to be growing at above 8 percent (barring agriculture at -0.2 percent and construction at 6.5 percent), reveal that the Indian economy has held up remarkably well in face of a severe deficiency of rainfall and the international economic and financial meltdown. These figures augur very well for future growth which, as we have maintained elsewhere will enter the 9-10 percent long term trend in the next decade. Already macro figures indicate that investment levels have not been affected too much over the last two years, and we believe will continue to be healthy in coming quarters and years. Moreover, after a long gap investment in agriculture related infrastructure will start to show an increase – though a large part of it will be coming from private entities and may not show up in the budget figures. Currently all eyes however are on the budget for 2010-11 - to be unveiled this month as the government will put forth its plan to wean the economy off the stimulus granted during the global crisis. We expect the government to increase the excise levels somewhat but not totally to the pre-stimulus-package levels, minor increases in social sector expenditure spending, and a minor movement in arresting the petro price related deficit. Beyond this, there is little the FM will do. This stimulus has come at a large cost, as we had been warning in our newsletters earlier. In our May 2009 newsletter we had written about the upcoming dangers, that are clear to all now: ‘ The main problem however will come up later this year, or may even surface next year when the high fiscal deficit will combine with rising demand to raise inflation levels substantially. Even now, the WPI which had been forecast by many to hit negative numbers, is still reluctant to oblige; even with the high base effect, large positive week on week rises have kept the WPI inflation in the positive zone. …Worldwide, as prices reflect the expectations of demand, we can expect higher levels in basic commodities like crude, copper, steel etc. as news of recovery in emerging economies impacts these markets. Again, we caution that this does not mean a hike into levels above $100 a barrel for crude, for instance, but the range of $40-50 of the past 3 months will move to higher levels of $60-70, consumers, the government and the firms must be prepared for this.’ Over and above this, the news from Europe is not good and will impact international financial markets adversely – this will occur over the next few weeks if not months and India needs to be prepared for it. Meanwhile, the RBI has also effectively announced that it will not take a hawkish stance on interest rates or liquidity and expects the government to announce some withdrawal of the stimulus package and reduce deficit levels. We expect that that would be in the 5 to 5.5 percent range for 2010-11 budget. But we continue to maintain, this will not be good enough, and the FM should try harder at curtailing the deficit.

1. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
The
Emerging
Economy
– Monthly Newsletter from Indicus
Analytics
10th February 2010
Highlights
o Growth surging ahead, now estimated at about 7.2
percent for 2009-10
o Upward growth momentum to continue into this
quarter and beyond
o All real investment indicators continue their rise –
high government expenditures crowding out
investment only marginally
o Inflation soaring in CPI, set to abate with rabi crop
arrivals in another month
o Government friendly RBI not keen to up the interest
rates – but keeping close watch

2. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
o Employment expectations moderate, slight
turnaround in organized sector
o Fiscal deficit crucial indicator for inflation and growth
ahead
The announcement of growth figures for 2009-10 at 7.2
percent where all sectors are expected to be growing at
above 8 percent (barring agriculture at -0.2 percent and
construction at 6.5 percent), reveal that the Indian
economy has held up remarkably well in face of a severe
deficiency of rainfall and the international economic and
financial meltdown. These figures augur very well for
future growth which, as we have maintained elsewhere
will enter the 9-10 percent long term trend in the next
decade.
Already macro figures indicate that investment levels have
not been affected too much over the last two years, and
we believe will continue to be healthy in coming quarters
and years. Moreover, after a long gap investment in
agriculture related infrastructure will start to show an
increase – though a large part of it will be coming from
private entities and may not show up in the budget
figures.
Currently all eyes however are on the budget for 2010-11
- to be unveiled this month as the government will put
forth its plan to wean the economy off the stimulus
granted during the global crisis. We expect the
government to increase the excise levels somewhat but
not totally to the pre-stimulus-package levels, minor
increases in social sector expenditure spending, and a
minor movement in arresting the petro price related
deficit. Beyond this, there is little the FM will do.
This stimulus has come at a large cost, as we had been
warning in our newsletters earlier. In our May 2009

3. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
newsletter we had written about the upcoming dangers,
that are clear to all now: ‘ The main problem however will
come up later this year, or may even surface next year
when the high fiscal deficit will combine with rising
demand to raise inflation levels substantially. Even now,
the WPI which had been forecast by many to hit negative
numbers, is still reluctant to oblige; even with the high
base effect, large positive week on week rises have kept
the WPI inflation in the positive zone. …Worldwide, as
prices reflect the expectations of demand, we can expect
higher levels in basic commodities like crude, copper,
steel etc. as news of recovery in emerging economies
impacts these markets. Again, we caution that this does
not mean a hike into levels above $100 a barrel for crude,
for instance, but the range of $40-50 of the past 3 months
will move to higher levels of $60-70, consumers, the
government and the firms must be prepared for this.’
Over and above this, the news from Europe is not good
and will impact international financial markets adversely –
this will occur over the next few weeks if not months and
India needs to be prepared for it.
Meanwhile, the RBI has also effectively announced that it
will not take a hawkish stance on interest rates or liquidity
and expects the government to announce some
withdrawal of the stimulus package and reduce deficit
levels. We expect that that would be in the 5 to 5.5
percent range for 2010-11 budget. But we continue to
maintain, this will not be good enough, and the FM should
try harder at curtailing the deficit.
Inflation levels for March end have been estimated by the
RBI at 8.5% against the 6% earlier, even as the CPI
inflation has been afire the last few months. While part of
this is due to the rise in food prices, prices of crucial
inputs like steel have been on the rise the last three
months as well. As crude has moved in the range we had
forecast, there is talk again of the need to free petrol and

4. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
LPG prices, talk of under-recoveries in OMCs to the tune
of Rs. 43,000 crores this year. How long will the govt.
continue to push real issues under the carpet?
It’s all very well to laud ourselves on an economy that has
‘recovered’ but growth that is fuelled by fiscal profligacy is
hardly an achievement. So this year, surprise us, Mr.
Finance Minister. Get a move on the real reforms, shake
the economy up and let’s see the forces that will let loose
real, inclusive, sustainable growth.
Sumita Kale and Laveesh Bhandari
8th February 2010, Indicus Analytics
Sumita Kale is Chief Economist, and Laveesh Bhandari is
Director, Indicus Analytics. They can be contacted at
sumita@indicus.net and laveesh@indicus.net.
Economic Growth
• Advance estimates from CSO peg GDP growth at
7.2% in 2009-10, agriculture down by 0.2%,
manufacturing up by 8.9% and construction by
6.5%.
• Amongst services, trade, transport and
communication is expected to grow by 8.3%,
finance, insurance and real estate by 9.9% and
community services by 8.2%.
• IIP growth in November rose to 11.7% over the
past year, the highest rate in 2 years.
Manufacturing showed growth of 12.7%, mining
grew at 10% while electricity generation was a low
3.3%
• Electricity generation in December grew by 6.72%
over the previous year. In January, provisional
estimates put growth at 4.3%.

5. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
• HSBC Markit PMI survey showed a surge in
manufacturing activity in January, with the index
rising to 57.7, the highest since August 2008. The
new orders index rose to a 2 year high. At 62.9, it
indicates a strong revival in activity.
• Infrastructure sectors grew at 6% in December,
compared to 5.3% the previous month. Finished
steel output rose by 9.6%. while cement was the
leading sector with growth at 11%.
• Revenue earning freight traffic carried by the
Indian Railways rose by 8.09% in December,
earnings have increased by 10.11% during the
period April-December.
• Naukri Jobspeak index of hiring shows a decline by
6% in December over the previous month,
attributed to the holiday season at the end of the
year. Hiring activity highest in pharma and health
care.
• Automakers see path of recovery established now:
in January, Maruti sales were up 33%, Hyundai up
42%, Mahindra and Mahindra up 71%, TVS Motors
saw brisk sales in both scooters and motorcycle
segments, while even General Motors reported its
best ever single month sales this January. Ashok
Leyland sales grew by 81% in the quarter Oct-Dec
reflecting positive trend in commercial vehicles
also.
• HSBC Markit Business Activity Index that tracks
the services sector reported highest level in
January since September 2008, but optimism
amongst respondents was weak for the future.
• After the dip in 2008, domestic aviation traffic
grew by 7.8% in 2009.
• Foreign tourist arrivals rose in December by 21%
over the last year, at 6.4 lakh, with earnings up by
44%.

6. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Read
Budgeting for India’s deficits
http://in.reuters.com/article/economicNews/idINIndia-458
15620100201?sp=true
Inflation
• WPI provisional inflation estimate surged in
December to 7.3%, compared to the 4.8% the
previous month. Manufactured products group saw a
rise of 5.17%, while primary articles prices grew by
14.88%
• Consumer price indices rose in December, inflation in
CPI IW stood at 14.97% while that for CPI AL stood
at 17.21%
• Arrival of rabi crop in the markets will stem the rise
of food prices.
• Global sugar prices rose to a 29 year high on January
21st, and are estimated to drop over the year as
Brazil releases more sugar into the market. However,
so far supply has been much tighter than expected.
• Steel price was again hiked by SAIL in February, in
line with the international trends and cost-push.
• Crude oil prices, which crossed $80 per barrel in the
first week of January, has since stabilised in high
seventies. Oil marketing companies are set to run up
under-recoveries of Rs. 43,000 crore this year.
Read
No case for petrol subsidy in India
http://www.moneycontrol.com/news/economy/no-
case-for-petrol-subsidy-indiams-
ramachandran_435551.html
Prices and Mr. Pawar

7. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
http://www.thehindubusinessline.com/2010/01/27/stori
es/2010012750240700.htm
Interest Rates
• The RBI raised the CRR by 75 basis points in its
January end review, and left other rates unchanged.
• The 10 year gilt benchmark has been on an uptrend
since January 2009 – 6.2044 then, the yield stood at
7.5678 at the end of last month.
• The Reserve Bank of Australia that had put in three
consecutive months of rate hikes, kept the rates
unchanged this month as it waits to see the impact
of previous measures.
• The RBI move followed the hike in reserve
requirements in China in mid-January, and the RBI
does not anticipate an early rate hike before April, is
inflation stays within its estimate of 8.5% by the end
of March.
Read
Transcript of Governor’s interaction with researchers and
analysts
http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?
Id=2111
A more transparent RBI
http://www.livemint.com/column/2010/02/02215906/A-
more-transparent-RBI.html
Exchange Rates
• Exports during December 2009 were valued at US
$14.606 billion, 9.3 % higher in dollar terms (4.8 %
in Rupee terms) than the previous year. Imports
were valued at US $ 24.753 billion, a growth of 27
% in dollar terms (22 % in Rupee terms) over the
previous year.
• Oil imports during December 2009 were valued at US
$ 6.536 billion, 42.8 % higher than the previous

8. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
year, while non-oil imports were estimated at US $
18.217 billion which was 22.4 % higher than last
year.
• The trade deficit for April- December 2009 was
estimated at US $ 76.242 billion, lower than the
deficit of US $ 106.240 billion during the
corresponding period the previous year.
• The rupee has been gaining strength since last March
and rose from its low of 52.06 to a dollar then to a
high of Rs. 45.35 early in January. It has been in the
range of 45-47 in the last two months, tracking the
dollar’s fortunes and capital flow movements.
Read
Is the sky falling?
http://www.emecklai.com/Market_Resources.aspx?
name=market_information/dr_risk_prescription
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9. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
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http://www.indicus.net/media/index.php/magazine/1518-
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10. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
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