Why the 10th Indian Auto Expo 2010 will attract such a large crowd?

Despite being cut short by two days, organizers are expecting the upcoming 10^th Indian Auto Expo 2010 will be the biggest in the world in terms of number of visitors. In 2009, thirty large auto shows were organized around the world. Most of these shows were held in the U.S., Europe and China. The New York Auto Show which was held in April, 2009 saw 1.2 million visitors. The Shanghai Auto Show, the third largest autoshow in the world had 6,00,000 visitors.

Pawan Goenka, President, Society of Indian Automobile Manufacturers (SIAM) and President, Mahindra & Mahindra said that the 2010 Auto Expo will be bigger, brighter and better than the previous shows. The growing number of visitors shows India’s growing importance in the world auto market.

The New York Auto show goes on for ten days and it attracts a lot of crowd for it is located at the center of New York. It is also promoted as a tourist attraction. The Shanghai Auto Show goes on for nine days. The 10^th Annual Indian Auto Expo which will be held at the Pragati Maidan in New Delhi will start from January 5^th and end at January 11, 2009.

The major reasons behind such big crowd is India has a fast-growing car and

two-wheeler market and there are more room for growth because India has only seven car owners per 1000 citizens. Indian and China were two economies to observe the fastest recovery from the worldwide economic recession. This year, the top car and truck producers of the world skipped many major auto shows including the Tokyo Motor Show. Now, they are looking forward to participate at the 10^th Indian Auto Expo 2010.

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India observed industrial growth for the third straight month in June

For the first time since September 2008, the Industrial output in India has grown. However, heavy monsoon rain and drought caused damage to the agriculture sector. In June 2009, the industrial output of India grew by 7.8% which has been caused by the stimulus package and low interest rates by the lenders. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, said that he had always expected the positive growth. For the third straight month, the Indian Industry has been showing positive growth which shows the country is on the road to economic recovery.

The Indian manufacturing sector which has been badly affected by the economic recession grew by 7.3% compared to 6.1% in June 2008. It registered a growth of 8% compared to 5.4% in June 2008. It also accounted for 80% in the Index of Industrial Production (IIP).

Consumer durables grew by 15.5% and capital good 11.8%; the highest and the strongest growth in the several months. Mining sector grew by 15.4% and power 8%.

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India will not see high economic growth in the next fiscal year

Indian economy has been observing rapid growth for the past six or seven years. In the post four years, the country observed an unprecedented average growth rate of 8.6%, but not anymore. On March 27, 2009, Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, said that Indian economy would grow less than 7% missing the government growth target of 7.1% in fiscal year 2008-09. Mr. Ahluwalia was attending the national conference and annual session of the Confederation of Indian Industry (CII) at the Taj Palace Hotel in New Delhi. The conference started from March 26, 2009. He said that the world economy was facing the worst crisis in the last sixty years and it would not go away in the next two years. Through the conference, Mr. Ahluwalia urged all the top businessmen of the country to remain patient. Here are some of the highlights of the CII conference:

The $1.2 trillion Indian economy, the third largest economy in Asia, is going through a tough time. According to latest estimates, Indian economy would grow only 6.5% in the current fiscal year ending on March 31. This lower level of growth has been caused by a decline in the supply of foreign funds. However, the country would be able to maintain its current growth rate in the upcoming fiscal year. IMF estimated India’s growth to be 6.3% in the current fiscal year and would decline 5.3% in the next fiscal year. Mr. Ahluwalia said that rural economy has been insulated from the global slump.

Indian government has not decreased its spending and introduced tax cuts which would increase the country’s fiscal deficit. According to Arvind Virmani, Economist, Finance Ministry, the higher spending will help India’s growth and government borrowing will not create any problem for private investment. Financial reforms are also necessary.

The latest assessment by the Indian government revealed that the year 2009 will be worse than 2008 due to the growing fiscal deficit. In the previous budget session, government estimated the fiscal deficit to be 2.5% of the GDP which was revised to 6% in the latest interim budget session that took place last month. According to Ahluwalia, the fiscal deficit would be more than 6%.

Economic stimulus is going to further increase the fiscal deficit, yet, the government must continue its stimulus measures. In September, India first felt the tremor of the economic downturn as the country’s credit market froze. Since then, the current government injected about $85 billion into the economy.

The new government that will come to power in May must spend 1% of the GDP as “extra stimulus” to maintain the current economic growth. The effect of the stimulus package declared by the government will be seen in the first quarter of the next fiscal year. The IMF urged all the countries of the world to spend at least 2% of their GDP on stimulus. Countries like Saudi Arabia, Australia, China, Spain and US will spend that much amount as stimulus.

Currently, India is observing its lowest inflation rate in the last thirty years. The downward movement of the inflation which was caused by high base effect continued till the middle of March but high cost of manufactured products like cement and metals stalled the pace of decline. Last week, the inflation rate was 8% and from there it came down to 0.27%. Now, it is very close to zero and many economists are predicting that the rate would turn negative and cause deflation. Deflation happens when prices of goods decline due to lower demand. This encourages consumers to lower their spending which affects the economic growth. Serious deflation might hike the unemployment rate. Both Mr. Ahluwalia and Arvind Virmani ruled out the risk of deflation. Arvind Virmani, top economist of the finance ministry believes that India’s inflation would not go below “zero” in the next fiscal year. He thinks that the wholesale price index on average would be “zero, plus or minus 2 percent.”

According to Mr. Ahluwalia, an existing gap between inflation rates based on the official wholesale price index and different retail price indices is depriving consumers of the benefits of lower inflation.

On the first day of the conference, Duvvuri Subbarao, Governor, The Reserve Bank of India, said that his bank is in touch with other private banks in the country and asked them to lower their interest rates. Since October 2008, RBI lowered its lending rate by 400 basis points. From the same month, RBI slashed the percentage of deposits banks are required to keep as cash and its borrowing rate by 2.5 percentage points to 3.50%.

On February 16, 2009, Pranab Mukherjee, acting finance minister, said that Indian government will have to borrow $71 billion in the next fiscal year. Current debt of the government is equivalent of 80% of the country’s GDP.

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(This entry was originally published in March 2009 and is written on the context of that time.)

Indian companies welcomed the new interim trading policies of the Commerce and Industry Ministry

On February 26, 2009, Kamal Nath, Commerce and Industry Minister, India, declared a new set of business policies that further simplified various export procedures. Indian businessmen welcomed this new interim trade policy. Mr. Nath was hopeful that India would suffer less from the global economic slowdown. In 2008, India set an export target of $200 billion and earned $162 billion from exports. Mr. Nath expects that the amount would increase upto $175 billion in the fiscal year of 2009 despite economic recession. Indian government has set a target to double the amount of trading in the next five years. The government has also made necessary recalculations of FDI.

Indian government has decided to increase the number of nominated agencies, declared Surat as a town of export excellence, and increased the amount of jewelleries that can be carried personally. It also decreased the custom duty under Export Promotion Capital Good Scheme (EPCG) to 3% from 5% and extended the Duty Entitlement Passbook (DEPB) upto the month of December. Mr. Nath hopes to achieve exports worth Rs. 90,000 crore from Special Economic Zones in 2008 and 2009.

After years of robust growth, currently, export, which makes up approximately a fifth of the annual GDP of India, contracted sharply to 16% in January 2009 and would further fall in the next two months due to worldwide economic recession. In order to cope up with the declining exports, Indian government cut interest rates since October 2008, decreased duties and increased subsidies for exporters.

Indian companies are saying that this new trade policy would give courage to exporters who are incurring losses in the face of worldwide economic recession. A Sakthivel, President, Federation of Indian Export Organizations (FIEO), said that the measures were pragmatic and it would save valuable time and money of the exporters. Confederation of Indian Industry (CII), another major Indian business body, also expressed its happiness over the new foreign trade policy. Chandrajit Banerjee, Director General, CII, said that the announcement of the supplement trade policy would go a long way in increasing employment and increase export.

However, export lobby group are asking for more incentives to cut further losses. FIEO requested the government to simplify the reimbursement procedure for instant refund of service tax.

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(This entry was first published in February 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)