The weekend before our recent NASSCOM briefing (detailed in this week’s First Thing Monday newsletter, subscribe here), you may have seen the Saturday headlines: “Seven explosions rip through Bangalore” or “7 small bombs hit technical hub; 2 die.” The news didn’t get any better on Sunday. A terrorist group had set off 15 or 16 small bombs in Ahmedabad, north of Mumbai, killing 29 and wounding 88. Bangalore is India’s technology center and home to 36% of the 2 million IT workers.
The news didn’t get much better on the Delta Shuttle to New York. The headline of the lead article on the second page of The Wall Street Journal (July 28 ) read “India’s swelling deficit has potential to set off cascading economic troubles.” Here are some of the points raised:
- 2.9 million government employees are due for a “once-in-a-decade” salary increase that could be as much as 40% according to estimates by Standard & Poor’s.
- Annual inflation rates are running above 11%
- India’s GDP growth will slow from 9.1% for FY08 to between 7 and 7.5% for FY09 (ends March 31). The Indian government will issue bonds representing 3.6% of GDP to oil and fertilizer companies as partial compensation for selling their products at below global rates.
- Morgan Stanley estimates that India’s fiscal deficit will rise to 11.4% of GDP, up from 7.7%. To put that into perspective, in FY08 India’s IT and BPO accounted for $64B or 5.5% of the country’s GDP.
- The country needs to spend an estimated $500B to improve the country’s infrastructure. This will likely require a combination of government and private funding.
On August 2, The New York Times published an AP article on a recent report by India’s central bank that predicted more difficult economic times, higher inflation, and a decline in corporate profits. The bank surveyed 20 forecasters who said they expected GDP would fall from 9% to 7.9% over the next three fiscal quarters, and that corporate after-tax profits would decline from 25% to 16% over the same period. Inflation was expected to rise to 11.7% this quarter, then fall to 11.4% and 8.2% in the subsequent quarters.
When we were in Mumbai in February everyone we met asked us about the status of the US economy. Ironically, when we return this fall or winter, we will be asking them about the state of the Indian economy.
What do you think? And what do you think of India Inc.’s weathering of the U.S. downturn as we talked about in this week’s newsletter column? Let us know here.