The First quarter of 2009 is showing some positive signs for the world’s largest democracy, India. The 100 billion people Indian economy, grew by a healthy 5.8% in the first quarter of 2009. The analysts had estimated a 5% growth for the economy, which is still half the rate of growth it achieved in the last five years.
India does have good share of exports to US and it saw the exports crash by over 30% in the last two quarters, which has halved the GDP growth rate.
The Indian government spent over 7% of the GDP under stimulus package in the last two quarters, which has helped it to post a higher than expected GDP growth.
But the billion dollar question will be how the new Indian government will handle the economic recovery in the coming months, because it is facing huge challenges on many fronts.
First, it is already sitting on two digit fiscal deficit, so it cannot keep on borrowing money for spending.
Second, it is seeing a sharp decline in tax revenues, with the current year figures showing a 30% decline.
Third, the exports might not recover in the coming months, because US and Europe are in deep recession.
Fourth, the stock markets are still not lucrative enough to help companies raise new capital.
Fifth, the new government might have to face political challenges if it tries to divest equity in profitable public sector companies.
So, it would be prudent to wait and watch the Indian economy, before investing your hard earned dollars.