I. Executive Summary?

Brazil, Russia, India and China ended the first BRIC summit by calling for an increased role in global financial institutions by emerging economies and developing nations, this definitely paints a good picture for India to have a greater voice and representation in international financial institutions which was earlier perceived to be the ball game of only developed nations. The impact of the rapid shrinkage in global demand and trade was particularly felt on India's current account, exports along with widening trade deficit. India's fiscal deficit is also likely to overshoot than the expected budgeted estimate of 5.5% in FY10 due to the global liquidity crisis which has affected the domestic economy.

Though inflation rate is in negative zone, Reserve Bank of India maintains that there is no threat of deflation as food and crude oil prices are still firm and India does not face demand constraints.

Inspite of all these tremors the global investors are still very positive with respect to the Indian market as it has seen a huge inflow of FIIs in the market for the first time since June 2008. Even the total outward investment from India has risen largely due to acquisitions. The Indian stock markets have risen to be amongst the best performers globally across the emerging and developed markets in 2009 year-to-date, according to a study.

With all the apprehension the projection of growth for India has still been positive with OECD raising India's growth forecast to 5.9 per cent for the current year and Reserve Bank of India estimating the GDP to expand at a rate of six per cent this fiscal year

II. Macro Economic Indicators

Gross Domestic Product

• Centre for Monitoring Indian Economy (CMIE), India's leading think-tank forecasts that India's real Gross Domestic Product (GDP) will grow by 6.6% in 2009-10. The think tank expects real GDP growth at 6.5% for the year 2008-09. CMIE stated that the 2009-10 economic growth is likely to be lower than expected inspite of the agriculture sector doing well during the second half of 2008-09 and the industry recovering by January 2009. The tempered expectations are attributed to deep declines in the growth rates of the trade and transport sectors. Overseas trade declined and trade in commodities like cotton and sugarcane also slowed down. The freight movement on the railways and cargo movements on ports witnessed steep fall. Since it doe not see any signs of recovery in agriculture and industry during the March quarter and hence it is anticipating a moderate growth of 6.5% in 2008-09.
• The Organisation for Economic Cooperation and Development (OECD) raised India's growth forecast to 5.9 per cent for the current year and urged the new government to restore fiscal discipline and move ahead with disinvestment. The OECD, in March, projected 4.3 per cent economic expansion for India in 2009. Pointing out that combined fiscal deficit of the Centre and state governments would go up to 11 per cent of the GDP during 2009. Indian Prime Minister Manmohan Singh expects the country's economy to grow by seven per cent in the current fiscal year (2009-10). Meanwhile, the Reserve Bank of India estimates the GDP to expand at a rate of six per cent this fiscal year.

Industry

• India's Index of Industrial Production, or IIP, turned positive, after reporting a negative growth consecutively for months, even as certain sectors like consumer non-durables and capital goods continue to show negative growth. As per the data released by Central Statistical Organization of the Ministry of Statistics and Programme Implementation, the IIP for April had a growth rate of 1.4%, significantly down from 6.2% for the corresponding month last year. The ministry also revised the estimated negative growth for March to 0.75% from the earlier negative figure of 2.3%.
• The six core industries grew by 2.8 per cent in May 2009 against 3.1 per cent in the same month last year on improved production in cement, coal and electricity. The growth rate of six core industries -- crude oil, petroleum refinery products, coal, electricity, cement and finished steel -- was 4.3 per cent in April. Cement production increased by 11.6 per cent in May against 3.8 per cent a year ago, while coal production rose by 10.2 per cent during the month against 8.8 per cent in May 2008. Electricity generation grew by 3.3 per cent in May 2009 against a growth rate 2 per cent in the same month last year. However, crude oil production contracted by 4.3 per cent in May, while it had a growth rate of 3.2 per cent in the same month last year. Production in petroleum refinery products too shrank by 4.3 per cent in May compared to a growth rate of 0.1 per cent in May 2008. Finished steel posted a growth rate of 1.4 per cent in the second month of 2009-10 fiscal against 3.3 per cent in the same month last year.

Inflation

• Driven by higher prices of food items like pulses, cereals, milk, and fruit and vegetables, inflation rose marginally to minus 1.14 per cent against (-)1.61 per cent in the previous week. The wholesale price index stood at 11.80 per cent during the corresponding week a year ago. The index was 234.2 points for the week ended June 13 from 236.9 in the same week a year ago. This is the second week in a row when inflation has remained in negative territory.
  
  Year-on-year, the prices of cereals went up more than 13.7 per cent, pulses 17.06 per cent, and fruit and vegetables 10.22 per cent. At the same time, the prices of milk have gone up nearly 4.8 per cent over last year, while spices were more expensive, by about 8.08 per cent.

Year-on-year movements of WPI
	Feb. 08	Feb. 09
All Commodities	219.9	227.6
PrimaryArticles	230.6	246.4
Food Articles	222.1	242.9
Non-Food Articles	221.6	226.4
Minerals	613	612.2
Fuel, Power, Light & Lubricants	335.3	323.9

Balance Of Payments

• 4 QFY 09 Balance of Payments - Despite a slow down in invisibles (both software and remittances), a sharp contraction in the trade deficit resulted in India posting a current account surplus of US $4.7bn in 4QFY09. However, the capital account remained in the red at US $ 5.3bn.
• Current Account: Due to higher oil prices, the trade deficit widened to US $ 119.4 bn or 10.35 of GDP.
• Capital Account: Despite the uptrend seen in both FDI (US $ 17.5 bn) and NRI deposits, FII outflows resulted in capital flows at a mere US $ 9.1 bn vs. US $108 bn in FY 08.

Trends in the Balance of payments (US$bn)
	FY 09 - Q1	FY 09 - Q2	FY 09 -Q3	FY 09 - Q4
Trade Balance	-31.4	-38.7	-34.7	-14.6
Exports	49.1	49	37.3	39.8
Imports	80.5	87.7	72	54.4
Invisibles	22.4	26.2	21.7	19.3

	FY 09 - Q1	FY 09 - Q2	FY 09 -Q3	FY 09 - Q4
Current Account	-9	-12.5	-13	4.7
Capital Account	11.1	7.6	-4.3	-5.3
Overall Balance	2.2	-4.7	-17.9	0.3

• India's fiscal deficit in April was at 541.58 billion rupees ($11 billion), or 16.3 percent of the full-year target. Tax receipts were at 74.62 billion rupees while expenditure was at 662.17 billion rupees for the first month of 2009/10 fiscal year.
• Indian Government's gross fiscal deficit is likely to overshoot the budgeted estimate of 5.5% in FY10 on account of a hike in expenditure and slow pace of increase in tax revenue, according to Centre for Monitoring Indian Econmy (CMIE). In the interim budget, the government had pegged the gross fiscal deficit at Rs3, 32,835 crore. The global liquidity crisis affected the domestic economy and the fiscal deficit adversely, adding that India's fiscal policy turned expansionary during the second half of 2008-09.

Capital Markets

• Global investors have poured in close to USD 200 million in India-focused equity funds in the first week of June, while the overall Asia-dedicated funds witnessed the biggest inflows of as much as USD 1.54 billion, according to data complied by international fund tracking firm EPFR Global. This inflow is the highest amount seen in the past 55 weeks. In Asia (excluding Japan), equity funds posted the biggest inflows in dollar terms worth USD 1.54 billion.
• Capital flows to India will almost double to USD 33.9 billion (Rs 1,59,003 crore) in the current financial year from an estimated USD 17.3 billion in 2008-09, riding on an improved sentiment for the country's economic growth, according to financial services major Morgan Stanley.
• Indian exchange exchanges space, including stock, commodity and currency segments, is expected to more than double its growth to touch an annual turnover of over $10 trillion (about Rs 4,700 lakh crore) by FY'14, on increasing penetration and structural transition, according to a report by brokerage firm IDFC-SSKI, riding on the back of improving penetration and structural transition into a more organised industry, the Indian exchanges space is headed for robust growth in next five years. With strong secular growth in the underlying market, the $4 trillion (Rs 190.17 lakh crore) Indian exchanges industry is headed for 2.5 times growth in next five years

FDI / FIIs

• Total FII investments in domestic equities has crossed the $60-billion mark-the first time since June 2008-in what could be gauged as renewed commitment by overseas investors to the Indian stock market. Since March this year, foreign investors have been aggressively buying, pumping in nearly $7 billion in just 60 days, according to Securities Exchange Board of India. (SBI). Extrapolating the numbers would mean FIIs have invested (net) of around $120 million every day since March 9. This has led to the net investment position of FIIs increasing from $53.3 billion in March 9 to over $60.3 billion till June 10. The data pertains to all FII activities in India, including trade in secondary and primary (IPO) markets and in right/bonus issues, private placement and M&As.
• The Indian Govt. has cleared 23 FDI proposals, which will bring Rs 564.80 crore into India, including Dubai-based Damas' plan for retail trading in jewellery and Danone's plans to re-enter food products space after quitting Britannia earlier this year. A proposal by Damas LLC to set up a joint venture with Gitanjali Lifestyles for retail trading of jewelleries will bring in foreign direct investment (FDI) of Rs 180 crore. The Indian government, on the basis of recommendation by the Foreign Investment Promotion Board (FIPB), deferred 13 proposals which include United Breweries plans for raising Rs 708 crore by issuing fully convertible equity warrants.
• Indian Rupee
The rupee rose to a two-week high, with a weaker dollar lifting sentiment, and traders awaited opening deals in local equities for cues on capital inflows. The rupee was 47.75/76 per dollar, off an early peak of 47.74, its highest since June 16'09. The Indina rupee opened stronger due to the dollar's weakness overseas.

Net foreign portfolio inflows of around $7.3 billion since mid-March have helped the rupee to rebound from a record low of 52.2 hit in early March.

Trade

2008-09 P	US dollar million
	Export	Import	Balance
April	15,961	24,823	–8,862
May	15,550	26,684	–11,134
June	16,522	25,734	–9,213
July	17,072	29,054	–11,982
August	15,900	29,040	–13,140
September	14,131	26,417	–12,285
October	12,814	22,724	–9,910
November	10,206	22,405	–12,198
December	12,151	18,419	–6,267
January	11,422	16,415	–4,993
February	11,913	16,823	–4,910
March	11,516	15,561	–4,045

Source: DGCI & S and Ministry of Commerce & Industry

• India's exports of jewelry, garments and other goods slid 33 per cent in April, shrinking for the seventh straight month, hit by a demand slump in major global markets. Exports slumped to 10.74 billion dollars in April from 16.08 billion dollars a year ago as the global appetite for made-in-India goods contracted. Imports slumped in April for the third straight month, falling 36.6 per cent to 15.8 billion, reflecting a tumble in world oil prices and easing demand. The trade deficit for April was five billion dollars, down from 8.7 billion dollars a year ago. After posting blistering export growth of more than 30 per cent in the first six months of the financial year to March 2009, overseas sales began declining in October when the global financial crisis began to bite. The Indian Government has forecast more bad news in the months ahead for export demand for Indian goods like textiles, jewelry and handicrafts. It has forecast exports will keep falling until at least September and the turnaround will be only gradual as the world economy recovers. For the last fiscal year, exports grew by just 3.4 per cent to 168.70 billion dollars.
• India's exports fell an annual 29.2 per cent in May to $11 billion, its eighth straight monthly fall, as recessions at developed nations slashed demand for Indian goods. Imports dropped 39.2 per cent to $16.2 billion in May. Trade deficit halved to $5.2 billion in May from $11.13 billion a year earlier.
• India has emphasised the need for resuming talks on the WTO's stalled Doha Round, stating that the negotiating text for global trade can be the staring point for further talks. Disagreement between India and the US over reduction in tariffs led to the collapse of talks between the WTO member countries in July 2008 in Geneva. There are serious differences between developing and developed countries over the level to which they are willing to open their markets.

BRIC Summit

Despite advance bluster about challenging the financial status quo, the first summit of emerging "BRIC" powers was a muted performance, underscoring the hurdles that they face in forging a cohesive bloc. The meeting of Brazil, Russia, India and China was not very substantial considering the fact the final communique did not mention the creation of a supranational reserve currency to dilute the dominance of the U.S. dollar, an idea Russia had promoted heavily. Instead, the four disparate emerging market powers presented a broad common front to try to get more say in negotiations with rich powers.

BRIC governments need to agree on a shared agenda that goes beyond simply asking for more places at the global top tables. Sharp differences between them make this difficult. China, by far the most powerful BRIC nation, did not echo Russian and Brazilian calls for the BRIC powers to try to loosen the grip of the dollar on the world financial system. Beijing's huge holdings of U.S. bonds make it nervous about any tough talk that can drive down the value of those holdings. China is the world's largest holder of U.S. Treasuries with $767.9 billion Potential differences between Russia and China were also visible in policy towards Central Asia

The BRIC powers have agreed to continue their four-way courtship next year in Brazil. But how cohesive the nascent bloc is by then will depend on how far it can agree a common agenda.

Corporate Input

• India Inc mobilised US$ 991.4 million during April-May 2009 due to revival in market sentiments, according to a report by the brokerage firm, SMC Capitals. The report also stated that this capital raising activity is set to gain further momentum. Fund raising through various instruments like rights issues, initial public offers (IPOs) and qualified institutional placements (QIPs) during the first two months of 2009-10 rose by over five-fold to US$ 991.4 million than the first two months of 2008-09.

Strategic announcements - National

• Infrastructure - The Indian Government plans to take up all main gas pipeline projects in the country to ensure their speedy implementation, in a move that could end the dominance of Gail India and Reliance Industries in the sector. The government may set up an apex implementation agency, on the lines of the National Highways Authority of India (NHAI), which will lay natural gas pipelines along the national highways.
• Luxury: Tissot, member of the Swatch Group, a leading Swiss watch maker, is betting big on the Indian watch market, lining up new launches and planning to expand its distribution network in the next few years. Currently, India is among the top 17 markets amongst Tissot's global markets, which spread across the US, Europe, West Asia and Far East.
• EBONY Homes, the home furniture retail arm of the $3 billion DS Constructions, has plans to invest Rs 120 crore to set up a chain of 20-25 furniture stores styled Ebony Gautier across India by March 2012.
• R&D: The search for innovative drug molecules and better technologies by pharmaceutical MNCs is expected to offer a windfall for the smaller research-oriented Indian firms. MNCs, whose drug pipelines are drying up and more blockbuster drugs going off-patent, are desperately looking for alliances for drug co-development, buying or licensing out innovative molecules which can further be developed into finished drugs. Smaller Indian firms such as Indus Biotech and Rubicon Research are set to sign multiple deals with MNCs for molecules as well as technology out-licensing.
• Engineering: Infotech Enterprises Limited, provider of engineering and geographic information services (GIS), has signed a multi-year contract with Incontrol Tech Sdn Bhd (iTEC), a Malaysia-based automation services provider to the power industry. The contract envisages implementation of an enterprise GIS information system for Tenaga Nasional Berhad (TNB), which is the largest electric utility in Malaysia with a total installed generation capacity of about 11,200 Mw.
• Software: India's second biggest software exporter Infosys Technologies plans to open a software development and back office centre in Brazil later this year, as the company seeks to serve its US customers better by establishing a near-shore presence. Apart from being a local delivery centre, the new unit will also help Infosys gain more business from the regional market.
• Aeronautics: Hindustan Aeronautics Limited (HAL) has bagged an $10 million order for supplying two light utility helicopters to the Namibian armed forces. HAL has bagged a new export order to supply helicopters to Namibia, a southern African nation. The deal with the Namibian Defence Ministry was signed in April this year and it came in the wake of series of export orders bagged by HAL for supply of Dhruv Advanced Light Utility Helicopters in the past one year.
• Energy: Axis Private Equity and IL&FS Financial Services Ltd (IFIN) to invested Rs 90 crores in Shalivahana Green Energy (SGEL). While Axis PE will invest Rs 54 crore directly, IL&FS Financial Services will contribute Rs 36 crore. SGEL is one of the leading renewable energy players with focus on development and operation of biomass and small hydro power projects.
• Pharma: Pfizer is all set to acquire RFCL's (erstwhile Ranbaxy Fine Chemicals) animal healthcare division from ICICI Venture in a deal estimated to be at $75 million (approximately 375 crore).

Strategic announcements - International

• Communication: British Telecom (BT) Group and Tata Communications (Tata Comm) have signed a five-year agreement worth about $1.5 billion. As per the deal, Tata Comm will become BT's primary supplier of international direct dial (IDD) and other voice termination services outside BT's own footprint countries, i.e., barring a few European nations. Also BT will become Tata Comm's main distribution channel for its IDD traffic into the UK, expanding into other markets across Europe as the relationship matures. With the deal, Tata is expecting an increase of about 6 billion minutes annually. Revenues from voice constitute about 57% of the total Tata Comm's revenues.
• Chemicals / Fertilizers - Paradeep Phosphates Limited (PPL) has drawn up a plan to invest Rs 400 crore in the next four years to scale up its production capacity of phosphatic fertilisers from 12 lakh tonnes at present to 20 lakh tonnes by 2013.
• Textiles: S. Kumars Nationwide, along with its operating partner Emerisque, UK, has acquired Chicago-headquartered Hartmarx Corporation for $119 million (Rs 571 crore). The acquisition will enable SKNL Group establish a substantial footprint in the global arena and also bring significant business volumes to the SKNL Group operations in India through a ‘front-end back-end synergy’ strategy.
• Biogeneric antibodies: Biocon Ltd collaborated with the US-based generic drugs major Mylan Inc to develop, manufacture, supply and commercialise many high-value generic biologic compounds for the global markets. It did not disclose the financial terms or product details. Mylan will have exclusive commercialisation rights in the US, Canada, Japan, Australia, New Zealand and in the European Union and countries of the European Free Trade Association through a profit-sharing arrangement with Biocon.
• Communication: India's Tech Mahindra Ltd. has signed an initial pact with the U.K.'s WIN Plc to develop WIN's mobile platform. The new platform will enhance functionality, provide new payments solutions and faster transactions across various media services.
• Investments: Indian entrepreneurs have received licences from the Ethiopian authorities to invest an aggregate capital of USD 4.2 billion in 439 investment projects in the country. Trade and investment ties between Ethiopia and India had been flourishing since the two countries were on the same track of development. The co-operation between the countries had been enhanced in the fields of agriculture, human resource development sectors, infrastructure and communication technology.
• Tata Consultancy Services (TCS) has opened its third global delivery centre in Queretaro, Mexico and seventh in Latin America. The other two Mexican centres are in Mexico City and Guadalajara in Jalisco state. The opening of the centre in Queretaro represents an important step in the expansion plan of TCS in Latin America. The IT company also expects to hire 500 professionals during the current financial year for its new centre. With over 1,000 people in Mexico alone, TCS plans to take the headcount to 5,000 by 2012. TCS has a presence in Brazil, Chile, Argentina, Uruguay and Mexico. The total headcount in Latin America is over 5,000. Contribution from Ibero America, which covers Latin America, was 4.7 per cent of the company's revenue for FY09.
• UAE is looking for more opportunities for investment in the infrastructure and other areas in India. UAE is exploring new avenues of cooperation, especially in the domain of trade and economy with India UAE which has invested over US Dollars 4.5 billion in India through FDI and FII route and was among the top ten investors, and is looking for more opportunities in infrastructure and other areas in India to invest.
• Apollo Tyres Ltd acquired Dutch-tyre firm Vredestein Banden BV for an undisclosed amount. Vredestein Banden, which has estimated annual revenue of 300 million euro, was a subsidiary of Russia's largest tyre manufacturer Amtel-Vredestein which went bankrupt last month. The Dutch firm has been renamed as Apollo Vredestein BV Private Ltd which will be integrated with public listed Apollo in the next few months.
• Exports: The bilateral trade balance between India and France shifted in favour of India in 2008, as India's exports to France increased by nearly 23 per cent. The bilateral trade between the two countries in 2008 clocked €6.8 billion with India enjoying a trade surplus of around €150 million. The exports of consumer goods, accounting for 34 per cent of the country's exports to France, garment and leather (28 per cent), agro food (10 per cent) and semi-finished goods such as chemical, plastics etc (24 per cent) picked up last year with more Indian items entering the European markets.
• Power: GMR International, a wholly-owned subsidiary of Bangalore-based GMR Infrastructure, signed an agreement with the Netherlands-based power producer InterGen NV to acquire the latter's 100 per cent ownership stake in Island Power, a Singapore-based private electric power utility. With this all-cash deal for an undisclosed sum, InterGen will completely exit from Singapore. GMR had acquired 50 per cent in InterGen during 2008 for around $900 million and, thus, had gained an indirect interest in Island Power.
• Renewable Energy: Norway is planning to increase its investment in India in the area of renewable energy, including solar and hydropower. Solar energy is one of the areas which Norway will be focusing on to further its relationship with India
• Nuclear: Areva, the world's biggest maker of atomic reactors, has offered India stakes in African uranium mines to ensure supplies for fuelstarved plants. State-run Nuclear Power Corp of India (NPCIL) is considering investing in as many as four mines, including projects in South Africa and Nigeria. India needs to invest in uranium assets to ensure fuel for a planned 14-fold increase in nuclear generation capacity by 2030 after a three-decade ban on supplies to the country was lifted last year. NPCIL may spend more than a planned $1.2 billion to buy equity in overseas uranium mines, including those in Russia and Kazakhstan.
• Private Equity Investment: The Carlyle Group, the world's largest private equity (PE) investment firm, announced the closure of its fourth Asian growth capital fund at $1.04 billion, of which around 40% is likely to be invested in Indian companies. The fund, Carlyle Asia Growth Partners IV (CAGP IV), will invest between $15 million and $75 million in each company. This is the first major fund launch targeting Indian companies in the past few months by a large PE group.
• IT: HCL Technologies bagged a five-year IT applications support and infrastructure management deal from US-based beverages firm Dr Pepper Snapple Group (DPS). While the IT firm didn't disclose the deal size, but the DPS deal marked the fourth largest outsourcing contract won by HCL in the US this year. The Indian IT firm had earlier bagged a $350-million contract from The Reader's Digest Association, a $100-million deal from Xerox and recently, a deal with MTV Networks.
• Infrastructure: Essar Telecom Kenya Holdings Ltd (ETKHL), a subsidiary of Essar Telecom Ltd, said that the Pan African Infrastructure Development Fund (PAIDF) has invested $93.75 million (around Rs 450 crore) in ETKHL to expand East African operations of Essar. PAIDF is a Pan African fund focussed on investing in and developing infrastructure projects across African nations.
• Pharma: Pharma major Lupin has acquired the global rights for an intra-nasal steroid (INS) product, AllerNaze. The Mumbai-based company has acquired the rights from Collegium Pharmaceuticals, a mid-size innovator company in the US. Though Lupin declined to comment on the size of the deal, sources said that the down payment was in the range of $20-30 million, apart from milestones-based payments that the US company.

III.Conclusion

The current key challenge facing India's Government is to maintain a strong growth rate, which has suffered in the face of the global financial crisis. The forthcoming Union Budget offers great opportunity to enhance transparency and kick off disinvestment, while balancing near-term stimulus with fiscal consolidation. Various sectors have put forth their wish list to the Government but it has been indicated that the reforms will take place in sectors which are capital deficit.

But with recessionary conditions in the developed countries - the US, the UK, Europe and Japan which has been perceived to come to an end and hoping that these countries will see a stronger economic data in the third or fourth quarter of this year. But the constraining factors will definitely be lower levels of bank leverage, reduction in consumption and spending, low investor confidence and dead weight of unemployment. With all this there will be a lot of struggle and tremors seen and felt before the recovery phase pitches in.

However, Corporate India is bullish about improvement in the country's economic situation in the next 18 months and believes developing nations will become more powerful as fallout of the global slowdown.

Growth will definitely accelerate helping India to decouple from developed economies.

References

• Financial Express
• Bloomberg
• Times of India
• Financial Times
• Reserve Bank of India
• Reuters
• Citi
• Economic Times