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Tuesday, Nov 25, 2008
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Global crisis: FM identifies impact on various sectors

Special Correspondent

Community
and services
will do well
Drop in inflow
of portfolio
capital feared

NEW DELHI: Even as India’s GDP (gross domestic product) growth is expected to moderate to a yet fairly robust seven to eight per cent in the wake of the global financial crisis, the Central Government has identified sectors that are likely to be adversely impacted in varying intensities while segregating those that may not be affected at all and others which may see positive impact.

In its report released at the Economic Editors’ Conference here on Monday, the Finance Ministry said: “While it is difficult to quantify the impact of developments abroad and at home on GDP growth, it is possible to indicate factors that may result in some moderation in growth.

“GDP growth should still look fairly robust...a growth between 7 per cent and 8 per cent will still be one of the best under these circumstances.”

Owing to the meltdown in global commodity prices led by the decline in crude oil prices, the report noted that the “positive impact may get reflected through a moderation in inflation, improving the corporate profitability through input cost reductions and increasing their internal accruals”.

The sharp decline in crude prices have moderated the prices of products which use crude and its derivatives as inputs such as fertilizers, chemicals and man-made fibres, energy substitutes (coal and gas), energy-intensive products (metals), products used as bio-fuels (edible oils, oilseeds, sugar) and primary commodities which have competing synthetic products such as natural rubber and cotton.

Moderate impact

As for overall growth, the report pointed out that many sectors of the economy would experience a moderate impact of the ongoing crisis coupled with domestic factors, while four others, including agriculture and electricity, would see a “neutral” impact. Moreover, while community and services — relating to defence and social sectors services — would witness a positive impact, the impact on the mining sector would be negligible. Besides, the growth was also likely to improve on account of the positive impact of the Sixth Pay Commission and other wage increases.

However, the sectors that would be moderately impacted are manufacturing, exports, construction, transport, insurance and banking, business services and real estate, the report said while noting that the impact would be neutral on sectors such as agriculture, electricity, communication, trade and recreation.

On the negative side, the country could witness lower inflow of portfolio capital despite the fact that India is ranked the second most preferred destination in the latest World Investment Report.

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