Highlights • 7.9% growth in second quarter powered by govt, lower growth next quarter • Growth in 2009-10 still estimated by us at 6.7%, agriculture well factored in • As expected, exports decline even lower in October, return to low levels of positive growth by March • Inflation hits manufacturing as well as commodities rise on stronger growth • Capital controls on the radar as inflows increase From the beginning of this year, we have been predicting a growth rate for 2009-10 at 6.7%. While most analysts have been revising their estimates upwards throughout this year, we maintain our growth estimate, despite the high 7.9% release by the government for the second quarter. There are two reasons for this – one, as the government itself has pointed out, the impact of the drought this year will make itself felt only in the Q3 estimates, when the kharif output is out, and two, the high growth in the second quarter is largely powered by public administration sector. In fact, if the community services, public administration and defence sector is given half its growth estimate of 12.4% in Q2, in line with previous quarter’s growth, GDP growth comes down to 7%. The government and the Reserve Bank know this, which is why a rate hike before January appears unlikely. Rising inflation is leading to rising tempers in the Parliament, not quite a healthy way to resolve an issue that is hurting so many. Wholesale prices of many essentials are up: milk by 8.27% since March-end, pulses by 25.02% and though the sugar price rise has moderated, it is still expected to rise after March as supplies get tighter globally. So what is the solution here? Market reforms in the supply chains of agricultural produce have been mooted many times but not acted upon enough. Improvements in storage and processing of produce will also go a long way in improving supplies. And there are more linkages being ignored in the inflation story. Take for instance, the change in visa rules for employment of foreigners last month. On the face of it, this has nothing to do with inflation, but this is one example of how the government creates hurdles in the smooth flow of goods and services across the country. The new rules have taken Chinese workers off a road being constructed in Himachal Pradesh. A road bringing better connectivity to the apple belt, which contributes 40% of the state’s apple cultivation and which annually suffers from wastage of Rs. 1200 crore due to poor transportation. The new visa rules in fact are a true symbol of how the government works. One ministry has little to do with the other, the impact of a policy change is not fully understood, and the government effectively just treats the symptom and ignores the underlying cause of the problem. The main reason why foreigners with the same skill sets as Indians are getting jobs here are because efficiency and productivity, much needed by Indian firms, are not a part of ‘skills’ as defined by the government. It is of course easier to just change visa rules, rather than change vocational training education on a large enough scale to account for these deficiencies. But then again, without any structural changes, talking of a 9% growth rate becomes as unsustainable as the previous years. Overall therefore, there will be some tempering of the growth numbers next quarter. Inflationary pressures will continue in the short, medium and long term. Commodities will once again face inflationary pressures and so will real estate. The economy is warming up, and we see every reason for it to heat up in a couple of quarters. The real challenge for macro management will emerge in a couple of quarters.

1. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
The
Emerging
Economy
– Monthly Newsletter from Indicus
Analytics
9th December 2009
Highlights
• 7.9% growth in second quarter powered by
govt, lower growth next quarter
• Growth in 2009-10 still estimated by us at
6.7%, agriculture well factored in
• As expected, exports decline even lower in
October, return to low levels of positive growth
by March
• Inflation hits manufacturing as well as
commodities rise on stronger growth
• Capital controls on the radar as inflows increase

2. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
From the beginning of this year, we have been predicting
a growth rate for 2009-10 at 6.7%. While most analysts
have been revising their estimates upwards throughout
this year, we maintain our growth estimate, despite the
high 7.9% release by the government for the second
quarter. There are two reasons for this – one, as the
government itself has pointed out, the impact of the
drought this year will make itself felt only in the Q3
estimates, when the kharif output is out, and two, the
high growth in the second quarter is largely powered by
public administration sector. In fact, if the community
services, public administration and defence sector is given
half its growth estimate of 12.4% in Q2, in line with
previous quarter’s growth, GDP growth comes down to
7%. The government and the Reserve Bank know this,
which is why a rate hike before January appears unlikely.
Rising inflation is leading to rising tempers in the
Parliament, not quite a healthy way to resolve an issue
that is hurting so many. Wholesale prices of many
essentials are up: milk by 8.27% since March-end, pulses
by 25.02% and though the sugar price rise has
moderated, it is still expected to rise after March as
supplies get tighter globally. So what is the solution here?
Market reforms in the supply chains of agricultural
produce have been mooted many times but not acted
upon enough. Improvements in storage and processing of
produce will also go a long way in improving supplies.
And there are more linkages being ignored in the inflation
story. Take for instance, the change in visa rules for
employment of foreigners last month. On the face of it,
this has nothing to do with inflation, but this is one
example of how the government creates hurdles in the
smooth flow of goods and services across the country. The
new rules have taken Chinese workers off a road being
constructed in Himachal Pradesh. A road bringing better

3. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
connectivity to the apple belt, which contributes 40% of
the state’s apple cultivation and which annually suffers
from wastage of Rs. 1200 crore due to poor
transportation.
The new visa rules in fact are a true symbol of how the
government works. One ministry has little to do with the
other, the impact of a policy change is not fully
understood, and the government effectively just treats the
symptom and ignores the underlying cause of the
problem. The main reason why foreigners with the same
skill sets as Indians are getting jobs here are because
efficiency and productivity, much needed by Indian firms,
are not a part of ‘skills’ as defined by the government. It
is of course easier to just change visa rules, rather than
change vocational training education on a large enough
scale to account for these deficiencies. But then again,
without any structural changes, talking of a 9% growth
rate becomes as unsustainable as the previous years.
Overall therefore, there will be some tempering of the
growth numbers next quarter. Inflationary pressures will
continue in the short, medium and long term.
Commodities will once again face inflationary pressures
and so will real estate. The economy is warming up, and
we see every reason for it to heat up in a couple of
quarters. The real challenge for macro management will
emerge in a couple of quarters.
Please visit our homepage for updated interactive time
series graphs of economic indicators and blog posts
throughout the month.

4. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
Sumita Kale and Laveesh Bhandari
2nd December 2009, 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
• GDP growth for the second quarter of this year
July-September has been estimated at 7.9% ,
with agriculture showing a positive 0.9%
growth, manufacturing at 9.1%, and the
services sector at 9.3%
• The highest performing sector was community
services and public administration growing at
12.7%, the impact of the Pay Commission
payouts.
• IIP for the month of September showed high
growth of 9.1%, manufacturing at 9.3%, mining
at 8.6% and electricity at 7.9%
• HSBC- Markit PMI showed a dip in November in
manufacturing activity, the index stood at 53
compared to 54.5 in October. New orders index
fell to 54.6, its weakest level since March
• Electricity generation grew by a mere 2.2% in
November, according to provisional data, while
final figures for October show growth at 4.67%.
• Car sales rose by double digits in November, as
Maruti recorded a 60% growth, Hyundai 93%,
Tata Motors 48%, while two wheeler sales were

5. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
powered by Hero Honda which saw its highest
sales ever in November – at 3.81 lakh units.
• Railway freight traffic increased by 11.72% in
October over the last year, a rise of 7.12% for
the period April-October
• Naukri Jobspeak index shows fall in hiring by
3.8% in the month of October over the previous
month. IteS, BPO, Pharma/Healthcare and
Banking are the sectors with positive hiring
growth in October.
• Cement production increased by 6.6% in
October over the previous year, while cement
despatches rose by 9.0%
• The Baltic Dry Freight Index rose to a 14 month
high, reflecting higher global activity, while
ports in India recorded 46.6 million tonnes of
volume in October, a rise of 11% yoy.
Read
In conclusion
Signs of a V shaped recovery
Inflation
• Reporting on the wholesale price index has
changed since November 14th – weekly data
released only on primary, fuel and light groups,
while data on manufacturing goods released on
monthly basis.
• Provisional WPI inflation for October stands at
1.3%, with manufacturing at 1.4%.
• Weekly rate for primary articles rose to 11.0%
while fuel and light group declined by 1.5%.
• Consumer price indices continue to show sharp
increases as these are heavily weighted by food

6. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
items – CPI AL inflation stands at 13.73% and CPI
IW at 11.49% in October.
• Crude oil touched a high of $78.64 in November,
the highest it has been since last October – crude
oil price averaged higher by 46.12% in November.
• While sugar price rise has moderated in the last
few weeks, the outlook for the year ahead is not
positive for consumers as supply constraints
plague the global market.
• HSBC-Markit PMI survey showed strongest rise in
output prices in November, since last September,
pointing to the pressures coming in from higher
input prices.
Read
Mixed veg – the real story on food prices
Sugar prices to stay high, may even rise after March
Interest Rates
• The yield on the 10 year benchmark gilt that had
fallen in the last week of November due to higher
liquidity rose sharply on the 30th of November to
touch 7.2798% on 1st December as the high growth
estimates pointed to a tighter monetary policy
ahead.
• The Reserve Bank is looking to make further moves
on its exit strategy but given the fact that growth is
still looking weak, rates would in all probability be
raised slowly from January onwards, depending on
the credit offtake and the inflationary pressures
coming in from manufactured items
• Reserve Bank of Australia tightened for the third
consecutive month, creating a record of three
straight increases.

7. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
• While Israel has gone in for a rate hike as well,
unexpectedly, Korea and Indonesia are still holding
out, Brazil has chosen to put a tax on short-term
capital inflows to discourage volatile capital
movements.
• The major banks of ECB, Bank of England and the
Federal Reserve are not expected to move on rate
hikes for another quarter at least, given the weak
growth in their economies. The fallout of the low
rates in the US, however, has been on the exchange
rate.
Read
Tighter capital controls in Asia inevitable
Exchange Rates
• Exports declined by 6.6% in dollar terms in October
over the previous year (minus 10.3% in rupee
terms), standing at $13.193 billion. Imports valued
at $ 21.994 fell by 15% in dollar terms( minus
18.4% in rupee terms) in October.
• Oil imports were lower by 9.3% in October while
non-oil imports were down by 17.2%.
• Trade balance estimated at $ 57.318 billion was less
than deficit of $87.827 billion for the period April-
October.
• This level of trade reflects the lower level of global
activity – a fall by 11.9% in trade volume according
to IMF estimates and lower commodity prices by
20.3%, oil prices have averaged 36.6% less than in
2008.
• However, this trend has already reversed and can be
expected to exert pressures on the rupee in the

8. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
months ahead. Copper has hit a 15 month high, gold
has surged to a record $1200 an ounce
• Forex reserves stood at $ 285.344 billion for the
week ending November 20th, a rise of $ 29.376 billion
over last year.
• FII investments to the tune of $1.183 billion in equity
and $ 0.147 billion in debt have taken the total net
investment since January 2009 to $15.258 billion in
equity and $1.375 billion in debt markets –
compared to a net outflow of $ 12.332 billion in
equity markets during the period April-November
2008.
• Capital inflows have pushed the rupee up – a high of
46.09 to the dollar in November and low of 47.13,
compounding the pressures coming in from a weak
dollar overseas.
Read
Has RBI been diversifying out of dollars?
Dollar/yen reversal in prospect
The great trade collapse
Recommendations
When foreigners build roads better
Experts raise growth predictions for India
A dining table drought

9. Indicus Analytics, An Economics Research Firm
http://indicus.net/Newsletter/Emerging_Economy.aspx
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