Low commodity prices and a likely softening of interest rates have set the right business conditions, but the revival of demand - both in domestic and overseas markets - will be the key driver in 2009, experts said.
Nevertheless, certain sub-segments within a sector or new emerging businesses like wireless mobile services, city-wide gas distribution networks, 3G services and electric motor vehicles could grow at a faster pace.
Economists contacted by Business Standard expect the Indian economy to recover only in the second half of calendar 2009. They cite a decline in private consumption demand and slowing investment as reasons for the slow recovery.
The growth rate of private consumption expenditure - which captures consumption demand - fell sharply to 5 per cent in the second quarter ended September 2008. It grew at an average rate of 8 per cent in the last three years.
However, the investment rate increased to 39.6 per cent of gross domestic product - the sum of goods and services produced - in the first half of fiscal 2008-09 compared to 37.4 per cent in 2007-08. But the investment rate is expected to slow significantly in the second half.
"People do have investment plans but the economic environment is not clear for them to take a decision," said Sumita Kale, chief economist with Indicus Analytics, an economics research firm. "The recovery hinges on nothing negative happening in the next few months," she added.
The growth rate of the Indian economy, after growing at 9 per cent in the three years up to March 2008, has slowed to 7.6 per cent in the second quarter ended September 2008. Economists are predicting that growth will drop below 7 per cent in the remaining half of the fiscal.
Telecom, agri, insurance, healthcare and FMCG to hold up: Though companies that are dependent on export markets are unlikely to recover soon, experts say domestic demand will be revived because of falling interest rates and the fiscal stimulus package that the government announced. Telecommunications - which is already posting healthy gains -along with agriculture, insurance, healthcare and fast moving consumer goods are all expected to post higher growth rates in 2009 also.
"The interest rate policy will help domestic demand," said D K Joshi, economist with Crisil Ltd, a ratings and advisory firm, adding that the current round of slow growth would "bottom out" by the second half of 2009-10.
A recent survey by industry lobby Ficci said wireless connections grew at 50 per cent in the period between April and November, 2008. Better-than-expected agricultural growth means rural demand for FMCG will be strong.
Infrastructure companies, which have higher debt because of stable cash flows, would also benefit from lower interest rates.
However, Joshi said three major sectors - steel, cement and commercial vehicles - would be problem areas because of surplus capacity. With demand for trucks drying up, manufacturers have cut factory output because of the build-up in inventory. Similarly, steel makers have reduced output to shore up domestic prices.
Emerging business opportunities: Despite the overall economy decelerating at a faster rate, newly created sectors like direct-to-home services, city-wide gas distribution, electric motor vehicles along with launch of new segments like 3G wireless services are expected to grow at a much faster rate.
DTH subscriber additions in the first nine months till December 2008 are estimated to have nearly doubled to 10 million, compared to 5.5 million at the end of March 2008. This business, though all firms are incurring losses, is expected to grow more than 60 per cent in calendar 2009.
Similarly, the gas availability from the KG basin block, off the coast of Andhra Pradesh, is expected to boost investment in city gas distribution projects, though production is dependent on the court battle between two companies owned by the warring Ambani brothers.
This will help the expansion of city gas distribution networks from just six cities to more than 230 over the next five years at an investment of Rs 40,000 crore (Rs 400 billion). Natural gas in kitchens will cost around 33 per cent of LPG.
With inputs from Rakteem Katakey and Aashish Sinha
