GROWTH: The main driver in the next few months is going to be lower interest rates and increased credit flows to consumers and companies. The government can help things along by quickly spending whatever money is available. We expect growth during 2009-10 to be less than in the current year, but with a turnaround beginning in the second half.
INFLATION: With energy and commodity prices crashing in the past few months, cost pressures have disappe-ared. Sluggish global growth will ease demand pressures as well, with excess capacities in many sectors. Inflation will not be a threat during 2009-10, but could re-emerge as the global economy recovers due to expansionary monetary policies.
INVESTMENT: Expansion of capacities in most sectors is unlikely to take place for some time. Overall, investment will be subdued. Public spending on infrastructure will be the most significant contributor, while real estate will show signs of recovery during the year in response to low interest rates and falling prices.
INDUSTRIAL PRODUCTION: With all the demand drivers for industrial production moderating, this indicator will be sluggish. Consumption, investment and exports have all been affected by the slowdown. The former two will respond to policy stimuli during the year, while exports will have to wait until conditions in key importing countries change.
EMPLOYMENT: Sectors that had ramped up workforces during the boom years of 2006-08 are likely to see significant attrition. This can happen in both white-collar (finance, IT and ITES) and blue-collar (jewellery, garments and construction) activities. Public spending will be key to restoring blue-collar jobs during the year.
EXPORTS: US, UK, the Euro zone and Japan, which together account for more than half of India's exports, are all in recession and will remain that way for some months at least. Consequently, exports will almost certainly decline during the first half of the year but may stabilize towards the end of 2009.
INFRASTUCTURE: Investment in infrastructure was just beginning to pick up as public-private partnership models in various sectors were being successfully launched. These will be hit by a drying up of private, particularly foreign, funds. The onus on government to keep investment going will increase considerably.
INTEREST RATES: With the Reserve Bank of India able to infuse liquidity and lower short-term rates in a benign inflationary environment, interest rates should remain soft through the year. However, increased pressure from government borrowing will tend to harden rates at the longer end of the yield curve.
CONSUMPTION: With lower growth and increased uncertainty about incomes and jobs in many sectors, consumption spending will be adversely affected. However, agricultural incomes should hold up and government and public sector employees, who have full job security, will earn substantially more. This should help stabilize spending.
FISCAL DEFICIT: The finance minister estimated the fiscal deficit for 2008-09 to be 6% of GDP and expects it to go down to 5.5% on the basis of his projected revenues and expenditures. Since both can change as a result of the new government's policies, in the foreseeable macroeconomic environment, it could end up higher than that.
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