But there are caveats even for these high-growth emerging economies because the global trade and currency imbalances are still entrenched, fiscal deviations becoming a medium-term adjustment problem, specially for India, and international oil prices back to worrying levels - from 30 dollars at the beginning of 2009 (falling from the 147 dollar a barrel in mid-2008) to close to 80 dollars by the latter half of October. This would mean impending adjustments in Indian retail prices of petrol and diesel under an irrational oil pricing mechanism the Government has obliged itself to follow, unlike countries such as China or Indonesia. Also, coal prices are rising and so power tariffs would follow and some escalating costs across the board.

The double digit consumer price rise for basic consumption goods like rice, pulses, sugar and other articles, persisting for more than a year, has not bothered the Government, which gets comforted by the decline in WPI. Its concern understandably is to ensure that people below poverty line (BPL) get subsidised foodgrains with all the deficiencies in the public distribution system. On inflation, the Prime Minister attributed food inflation to increases in minimum support price and that Government was tackling the situation and prices would come down “in the coming months”.

This does not square with the consensus view that WPI, no longer negative because of “base effect”, would be edging toward a 6 to 7 per cent rise by March 2010. While the all commodity annual rate of inflation was 0.92 in the week ended October 3, the rise even in the wholesale price index so far in the current fiscal year was 5.82 per cent and the indices year-on-year for primary articles 8.03 per cent and food articles 13.34 per cent. Nor is there evidence of foodgrain stocks making any impact on food prices, even if pulses, sugar and edible oils have had to be imported.

On the fiscal side, the Finance Minister has made it clear that to make recovery sustainable, there would be no pull-back from stimulus - the line India ardently advocated for all nations in G-20 Summit in Pittsburgh. Some turnaround in industrial production in July-August is seen as the direct result of public spending, which the Planning Commission and apex chambers of commerce want to be maintained till firm recovery takes hold. As tentative exercises for the 2010-11 budget get under way in a few weeks, Mr. Pranab Mukherjee will have even a more challenging job than he had in the July budget for the current year. He cannot tax to raise new resources for the coming year even if he has to keep down fiscal deficit below the record 6.8 per cent of GDP he allowed himself for 2009-10.

Mr. Mukherjee is on record to say that a roadmap for fiscal consolidation would be unveiled in the budget, a framework of which was awaited from the 13th Finance Commission. Again, the shape of the budget will be determined by the recommendations of the Finance Commission headed by Dr. Vijay Kelkar, due in December, on devolution of Union tax revenues to States for the next five years (2010-15), and by the proposed GST (Goods and Services Tax) - on which a final Centre-State deal providing for a two-tier tax, rates and related matters is yet to be clinched. The Finance Minister, however, has decided that the new Direct Taxes Code would be brought into effect only from April 2011.

Tax revenue receipts in the latter half of 2009-10 are expected to improve further, in which case the Finance Minister could aim at a 7.5 to 8 per cent GDP growth in the coming year and keep down the fiscal deficit at less than 6 per cent of GDP. Government is still moving hesitantly on disinvestment though it hopes with more profit-making enterprises listing themselves on the stock exchanges, they would both improve their own competitiveness and mobilise resources from the market. Over time, this could lower the current levels of budgetary support to public undertakings.

Our major grievance against the advanced economies, especially USA, is that regulatory mismanagement there had triggered the global financial crisis and recession which had hurt the developing world in trade, which shrank to new lows, affected tourism, financial and other services, and depressed capital inflows needed to buttress growth in emerging economies and other developing countries. India's dependence on capital flows, no less than on exports, for its relatively higher growth of recent years, despite our reliance on enviable savings and investment rates, had become too apparent in this crisis.

As the global economy seems to be emerging from recession, the investor appetite has returned, judged by the portfolio investments by foreign institutional investors totalling over 11 billion dollars in the first five months April-August, reversing the massive outflows in 2008-09. Foreign direct investment has held up at 16 billion dollars in this period raising total foreign investment to 27.50 billion dollars, almost double the figure in the corresponding period of 2008.

The Bombay Stock Market Sensex, turning bullish in recent months, crossed the 17,000 mark, a 17-month high, on October 14. It is largely fed by portfolio inflows though other positive signs of an economic rebound are not lacking. But market analysts do not rule out a swift downturn if for any reason foreign investors begin to make some withdrawals or emerging economic data of the coming weeks do not sustain the positive trends of the second quarter. Nevertheless, India is now regarded as an attractive investment destination.

Economic trends in the first half of the year (April-September) show an industrial revival, still in early stages, with the August figure showing a rise of 10.4 per cent as against 1.7 per cent in the same month last year. Retrospectively, there has been an industrial slowdown for over two years and the first five months (April-August) show growth at 5.8 (4.8 per cent), not indicative of manufacturing yet coming out of a virtual stagnation. But hopes are for better outturn in industry and infrastructure (core sectors) in the latter half of the year which, according to the Chairman of EAC Dr C Rangarajan, could end up with 8 per cent industrial growth. Automobile sector has done well in the first half of the year, backed by strong demand. IT Majors (TCS, Infosys and Wipro) have tided over the first half with improved results as demand stabilised and have revised earnings forecast for the coming year, also given recovery under way in US technology market.

The export decline from October 2008 onwards had not been arrested till September 2009 and the outlook is bleak as global trade is projected to shrink by 11 per cent this year. Major developed markets struggling to come out of recession offer no hope of demand revival for imports from developing countries at least till the end of the year or the first quarter of 2010. Meanwhile, the rupee appreciation against the dollar has affected export sectors, especially textiles, garments and leather goods.

On present indications, the Reserve Bank of India, which will announce its mid-term monetary and credit policy on October 27, is unlikely to revise the present accommodative policy stance but maintain the key rates, though it would take note of inflation expectations. Corrective steps as needed, whether in rates or cash reserve ratio, in the context of emerging developments in the last quarter of the year would be held in reserve till the first quarter of 2010. (IPA Service)