Tuesday, 25 August 2015

Is Indian economy poised to weather the global economic storm?

India, Asia’s third biggest economy is holding its head above water during a shaky time in the global economy. While India has also succumbed to a global markets rout, the country’s strong fundamentals will ensure that it will emerge strongly from this temporary setback.

Why the global economy rout isn’t a big worry for India?

The ongoing rout in the global stocks and deepening economic crisis in China has engulfed Indian benchmark indices, leaving Dalal Street shaken with the Sensex falling off the 26K cliff, shedding more than 5 per cent in August and the rupee  hitting a two-year low, falling to 66.74 per dollar amid China’s currency stunner.

A crash in global commodity prices amid China's move to devalue its currency, coupled with fears surrounding US policy tightening has created havoc in the global financial markets.

However, the impact of the ongoing global financial turbulence on India is expected to be only short-term & restricted to exchange rate volatility and stock market movement.

The country’s strong fundamentals, depicted by recent economic indicators, back up the strengthening growth story of Asia’s third biggest economy. India’s retail inflation cooled to a record low at 3.78 per cent in July, coupled with industrial output growth which quickened to 3.8 per cent in June 2015, year on year from 2.5 per cent in May 2015, along with a combined gauge of manufacturing & services rebounding into expansion terrain in July, while car sales soared 17 per cent in July.

In a nutshell, India is better placed to deal with the global shock-waves, amid the government’s strong reform commitment and prospects of further rate cuts with inflation under permissible limits, despite heightened global uncertainty.

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