Economic Highlights

New Delhi, 26 December 2009

Asian Year-End

INDIA BRINGS CHEERS TO WORLD

By Shivaji Sarkar

Asia with large contributions from India is likely to give the New Year toast to the world. The West is looking towards Asia for economic revival. American President Barack Obama told Prime Minister Manmohan Singh during his US visit that he hopes, “India will create jobs in the US”.

The US is leaning on the Indian civilian nuclear energy sector for generating business prospects of $ 150 billion. It would be a great beneficiary of the nuclear deal signed with India. It expects to generate several thousand jobs in the US. As of now unemployment is increasing in the US.

Likewise, the West is also looking towards China and South Korea primarily as also towards Vietnam and Malaysia as they have started spending. Consumers from India to the Philippines are spending with increasing zeal. Some see consumer spending in Asia boosting business profits. Unemployment rates are falling in most of the region. Asian consumers have also low debt compared to the West encouraging banks to lend more rather than shrinking it.

The International Monetary Fund forecasts inflation adjusted growth in developing Asia will be 7.3 per cent in 2010 compared to 3.1 per cent globally. Indeed, the Indian consumers despite facing high inflation have started spending. The government-backed Rs 60,000 crore stimulus is apparently creating some positive vibes. The core sector, accounting for 26.7 per cent of the country’s industrial output is clocking a growth of 5.3 per cent in the year-end against 3.5 per cent in October.

The steel sector registered impressive 11.7 per cent growth as demand jumped due to the increased auto sales and revival of construction activity. Cement production went up by nine per cent. Petroleum refinery production grew by 4.9 per cent again aided by higher auto sales and transport sector gaining momentum.

Indian companies, be it the Tata or Arcelor Mittal, are generating hopes in many parts of Europe. The US General Motors and German Volkswagen are looking towards India for selling their cars and pepping up the sagging economy in their homes. In fact General Motors is in a severe crisis in the West and is trying to either hive off its Swedish unit Saab or simply close it down. Importantly, while automobile sales are dipping in the West, in Indian these are making records. In November, vehicles sales rose to 130,000, 61 per cent more than a year ago, according to the Society of Indian Automobile Manufacturers.

Retailers are also having better returns because of higher consumer spending. It is a rare consumer growth, says managing director of Pantaloon Retail India, Kishore Biyani. The spending is also reflected in higher corporate tax collection by the Central government. Advance tax payment increased to Rs 1.13 lakh crore during April-December compared to 0.94 lakh crore in the same period a year ago. Finance Ministry officials estimate direct tax collections to exceed the budgeted Rs 3.70 lakh crore, given the robust collection of advance tax.

Though largely public sector companies – SBI, ONGC, LIC, SAIL - contributed to the growth, the consumer goods sector also saw an improvement in advance tax collections confirming higher consumer spending. Maruti Udyog, Bharti Airtel and Bajaj Auto paid higher taxes. Consumer goods’ company Hindustan Lever paid Rs 200 crore, up 29 per cent, and Grasim Industries paid Rs 150 crore advance tax up 100 per cent against last year’s figures.

The World Bank in its year-end review gave cheering news and showered praises on India for vastly improved health conditions and becoming one of the world’s fastest growing economies despite a global slowdown. On an average during the past four years India maintains 9 per cent growth.

Consumer spending in The Philippines rose four per cent in the third quarter, said to be the fastest pace during the past few years. Remittances from workers abroad have grown this year. The Philippines seems to have weathered the economic storm better than the West. Car sales have gone up by 4 per cent. Other consumer spending is also on the rise.

The Chinese consumers are queuing up luxury shops in Hong Kong. Job prospects have improved. Credit Suisse regional Asia economist Dong Tao says that Chinese consumers are buying, asset prices of property and stocks are appreciating. China has accounted for more than half of the world’s economic growth in the past three years, according to the IMF.

The IMF sees an ushering of a change in the Chinese growth pattern. So far the Chinese economy has been export dependent. Now domestic demands are adding to the growth. The recent Group of 20 nations’ meet had aimed at getting the US consumers to save more and Asian consumers to spend more. It seems households have now become a driver in the recovery across the region.

Except for China, in all other economies the domestic consumption makes up for more than half of the GDP. Exports contribute to less than 15 per cent of the Indian growth pattern. This, IMF surmises, means higher consumer spending will make a bigger contribution to overall growth in the Asian economies. Consumption has grown faster in these economies, a change from the last decade.

Tourism, which has seen a fall in the West, is re-bouncing in many countries in Asia. There is a new trend. Many more tourists are from the Asian countries. Higher numbers of Asian tourists are flocking to Malaysia, Vietnam and South and North Korea. Malaysia in fact is setting a sort of records. More than 22 million tourists, most of them from Asian countries, including India, have arrived on its shores, much more than expected. For the first time, a million Chinese tourists visited Malaysia. More tourists are arriving in Sri Lanka and India as well. The sagging hotel industry is looking at 2010 with great hopes.

The rebound of Asian economies is not only good news for these countries but it is also good for the Western economies. A small flow of emigrants towards these economies from the West has started seeking presently high profile jobs.

However, this does not mean that Asian dependence on the exports to the West would come to an end. The recent crisis, however, is an eye-opener for the region. It is giving a new confidence that they can survive without depending on the West, on their own and also with increased regional cooperation. This may bring in a new economic regime and change the global trade and political negotiations scenario. Indeed, the West may have to depend more on Asia in the near future. It is likely the New Year would bring in a qualitative change and Asia may really help beat the global downturn. --INFA

 (Copyright, India News and Feature Alliance)