India has emerged from the economic recession as one of the strongest growth economies in the world. If India's government can navigate its way through the challenges of implementing sound fiscal policy, India's exchange traded funds (ETFs) could be in line to deliver the goods, too.
After a brief pause, good things appear to be happening in India these days:
- According to India Infoline News, the HSBC-Markit Purchasing Managers' Index (PMI) stood at 58.2 in May, down from 62.1 in April. It's still growth, though -- anything over 50 signals expansion.
- Through March of this year, India's economy expanded 8.6% from a year earlier. That is slightly less than the forecasted 8.8%, but it's big growth that few would sniff at. Finance Minister Pranab Mukherjee expects the economy to grow 8.5% this fiscal year. [Is India the World's Next Superpower?]
- The services sector is a key component to India's growth, accounting for about 55% of India's $1.2 trillion economy. According to a key gauge, in May, this sector showed growth for the 13th consecutive month, although some momentum was lost from April.
- Farm output, which makes up about 16% of GDP, is another key component to India's growth. According to Mukesh Jagota and Anant Vijay Kala of The Wall Street Journal, economists are watching for monsoon rains, which are forecast to be at normal levels. Sixty percent of India's farmland is rain-fed. After a massive drought last year, this would be an improvement.
- A normal rainy season will also be a boon to food manufacturing, which accounts for 25% of India's industrial production. Industrial output rose 13.5% in March.
Rapid growth comes at a price, though: inflationary pressures. In the year through March, India's inflation stood at 10%. In response, the Reserve Bank of India has raised two key interest rates by half a percentage point and has withdrawn $10.5 billion of liquidity. Economists predict that the central bank will continue to raise rates.
Finally, India is trying to set up a $11 billion fund to finance infrastructure projects. According to New Delhi, 23% of India's roads are unfit for driving. Economists estimate that poor infrastructure shaves 2% off its GDP each year. [Infrastructure Spending.]
For more stories on India, visit our India category.
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Guest contributor Tom Lydon is President of Global Trends Investments, a Registered Investment Advisor. Global Trends Investments and its clients are not subject to the Fool’s trading policy, and thus may currently own or trade in, on behalf of its clients, long or short positions in any ETF mentioned in this article.