India - on the road to recovery?

New Delhi : India's economy, which has been hit harder than expected by the global recession, may be on the path to recovery, some recent data suggests.

Asia's third-largest economy is expected to have grown less than 7 per cent in 2008/09, sharply lower than the expansion of 9 per cent or in each of the previous three fiscal years, and is poised to expand at the same pace in the fiscal year ending March 2010.

Some analysts say the robust growth in steel and cement sales as well as in manufacturing in recent months showed the worst maybe over for the economy.

The following looks at the growth outlook for the South Asian economy and the pace of its economic recovery.

WHAT EVIDENCE IS THERE THAT WORST MAY BE OVER FOR THE INDIAN ECONOMY?

A slew of data in recent weeks has shown that a tentative recovery is taking shape. The ABN AMRO Bank purchasing managers' index (PMI) based on a survey of 500 companies, rose to 53.3 in April from March's 49.5, climbing above the threshold of 50 that separates expansion from contraction.

This was the first expansion in factory output in five months and showed demand in the economy is returning.

Data also signalled that demand in India's hinterland is firm and is supporting a vast expanse of the economy. Cement sales have grown at near double-digit rates since November, consumer goods sales have seen strong support from rural markets, while auto demand has firmed after a disastrous December quarter.

Wholesale price inflation shows demand has not fallen as anticipated and prices were holding firm.

Industrial output, which accounts for nearly a quarter of India's gross domestic product, has shown signs of revival after a dismal March quarter. January's initially reported fall was revised to a rise of 0.4 per cent.

Economists said stimulus packages announced by the government since late last year, along with aggressive policy easing by the central bank, look to be making an impact given improved car sales and uptrend in cement and steel demand.

They also say robust performance of consumer goods and capital goods, a key barometer of activity, in the February industrial output report showed that there is demand.

Analyst say savings and investment rates, which have reached close to 40 per cent due to the structural changes in the economy, would enable it to sustain an investment rate of 35 per cent despite lower capital inflows.