The structural base for 5.5 to 6% GDP growth is more or less a given factor. A particularly poor monsoon last year sliced off about one and a half percent from GDP growth through its direct and indirect effect. Thus, a combination of low statistical base and a good monsoon has revived the optimism for a `normal' growth of about 5.5%. In addition, lack of the nasty events such as major terror violence, war etc., are greatly discounted in the present situation. In fact, a lot of good macro fundamentals, as they call it, were always present for the past few yearsbe it low inflation and interest rates, high forex reserves and even forex inflows, and so on. Stock valuations were also attractive.
So, what has changed now? First, pessimism on global growth prospects has receded recently after the US war on Iraq being rather short, recovery in the Japanese and the US economies as well as the EU region not doing too badly. Second, price recovery in a number of commodity groups last year helped a strong recovery in corporate profits across the board and triggered the bull sentiments. Third, even the IT and telecom sectors are looking forward, reinforcing optimism.
Against this backdrop, a good monsoon provided the trigger in the whole situation. The optimism transcends beyond the current fiscal as additional growth is expected to revitalize demand well into the next fiscal. Going by the present indications, GDP growth this year should be in the range of 6 to 6.5%. |
