Indian economy showing signs of growth

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Bikky Khosla | 02 Feb, 2010
December recorded a positive growth for the second month in a row as exports grew 9.3 percent, an indication that the country's trade was coming out of the economic blues. The rapidly improving exports that grew for the second successive month can be seen as the result of normalcy being restored after years of wilderness due to global economic meltdown.

Another good indication is imports - particularly that of capital goods and industrial inputs - back to the positive terrain since the financial crisis. The rise in imports of capital goods and industrial inputs reflect an increase in manufacturing and investment activity in the country, which is indeed good news.

However, the Reserve Bank of India's decision to hike banks' cash reserve requirements was higher than what the industry and exporters had expected. Although RBI had to take the measure to check mounting inflation, I think we have to strike a balance between measures required to contain inflation and those which can insulate growth.

At a time when we are witnessing a gradual growth of the economy, an increase in interest rates is the last thing the industry will be able to take. I think banks should absorb the recent hike without increasing the interest rates which will otherwise impact the economic growth. India's Interest rates are already much above the international benchmark and an increase in prime lending rate will give a major jolt to the industry, especially SMEs.

The coming months will be crucial for both the industry and decision-makers and any decision taken will a have long-term impact. Let's just hope that we take the best decisions.