In November 2008, I wrote my views on the effect of recession in India. Its been nearly 45 days since then. Its time to check what is actually happening in the economy and get a little audaciuos to make a forecast for the year 2009.

Inflation

The inflation for the week-ended December 20, 2008 came in as 6.38%. The Prime Minister must be thanking his stars or his calculations, and if the current trend continues , and it should, by the time the 2009 Lok Sabha elections campaigning starts, inflation would no longer be an issue and many middle class families might actually be thanking the government for making many commodities affordable once again ( though the Government didn't have much hand in it and most of the game was played out in the global markets, but who cares) . This also bring to my mind the splash I wrote when the UPA government put everything at stake in July for the Nuclear Deal. I had expected Dr. Manmohan Singh to have done his calculations about the inflation and he seems to have got it spot on. Contrary to what most "analysts" were predicting about inflation, the UPA government seems to have managed to tamed it a lot earlier. Should inflation try to raise its head again, the Government still has a very potent weapon - petroleum price cut - left to strike it down once and forever ( certainly till the Lok Sabha 2009 Elections).  One of the biggest concerns for the Indian Economy seems to have been tackled, certainly in the medium term.

Trade Deficit

We had the data for upto the month of September at the time of writing the orignal splash. Since then, the data for the month of October and November have been released. Though the exports have declined from $13.74 billion in September to $11.5 billion in November 2008, the imports declined from $24.38 billion to $21.57 billion in the corresponding period, mainly on the account of the fall in crude prices. The crude bill has dropped from around $9 billion to $7.25 billion in November 2008.

As a result the Trade Deficit has narrowed to $10.07 billion in November compared with $10.54 billion in October and $10.65 billion in September 2008. The total trade deficit for the period April-November 2008 stood at $84.34 billion.

In short, though recession has hit our exports, the fall in the import bill more than makes up for the effect of the recession. Even in the recession, the exports in the eight months ended Nov. 30 rose 19.4 percent from a year earlier to $119.3 billion. Certainly not bad by any stretch of imagination considering the global recession.

The total import bill for the April-November 2008 period stood at $203.64 billion of which Oil imports were valued at $74.114 billion. Considering that crude trade well over $100/barrel for around six months of this eight-month period, and that crude in not expected to go back those highs anytime soon, the crude import bill for the coming year should be significantly lower. The production from the Krishna Godavari basin that began recently should be able to offset any increase in domestic crude consumption. Even if crude trades at an average price of around 70 dollars/ barrel in 2009, we should expect around 35-40% drop in the crude import bill. 

Let me get a little audacious here and do some back of the paper calculation to give a target for 2009 trade deficit. Most analysts expect crude to trade around the 60 dollar/barrel mark in 2009. Lets be a little generous and assume crude to trade at an average for 75 dollars/ barrel through 2009,  that is where it was for most of October - November 2008 period. The yearly crude import bill for 2009 should stand in the region of $80-85 billion. The non-crude import should stand around $200 billion giving a total import bill of around $280 billion. The government of India has a $200 billion per annum export target.This should confine the trade deficit to around $80 billion for the entire year 2009.  If my rough calculations, and I must add unqualified calculations, are correct, we would have managed to tame the monster and the recession should get all credit for it.

Oil Pool Deficit

When the crude prices soared, many private sector petroleum retailers like the Essar group and Reliance had to shutdown their petrol pumps. Essar has in the last couple of months re-opened over 800 of its outlets and it is expected that soon all the outlets would be functional once again. That the private players are coming back is a sure pointer that the oil PSUs are no longer losing any money. The government has so far wisely refrained from any drastic cut in the petrol/diesel prices. If they indeed refrain from doing so, we might find the Government making crores of rupees every year, for a change.This money, if spent wisely should be enough to take care of many of our woes. In short, I expect the oil PSUs to get self-sufficient this year if the government acts wisely, thus saving thousands of crores of rupees that had previously been earmarked to finance the oil-pool deficit.

External Debt

As per a ET report today, based on residual maturity or the remaining time until repayment, the total long-term external debt stood at $130.69 billion and short-term debt at $91.92 billion at end-September 2008.I believe these are fairly comfortable figures and our foreign exchange reserves to external debt ratio stands at 128.6% i.e we can pay-off all our external debt with our foreign exchange reserves and still have a few billion dollars to spare. India certainly has come a long way since 1991 when we had to pledge our gold reserves because our foreign exchange reserves had dwindled. This should, perhaps bring a smile to our faces.

I hope that what I think comes true for India in 2009, If it gets any better, we would all be more than happy.

Wish everybody all the best for the New Year 2009. Lets hope India rocks this year!