Strong growth, good weather for India.

Asia is the place to look for promising economic news and India is one of the leading sources.

According to The Indian Express (New Delhi), the government is forecasting 7 percent growth in GDP for fiscal 2005-2006. India's fiscal year runs from April 1, 2005 to March 31, 2006. Equally good news for India's consumers is that this year's monsoon is predicted to be normal.

In recent years, the monsoon has been erratic creating problems for India's agricultural sector putting pressure on food prices and aggravating India's severe social problems.

The CIA's World Factbook credits India with good progress in reducing poverty. It says since 1994, poverty in India has been reduced by 10 percent. The CIA's 2002 estimate of the size of India's population living below the poverty line is 25 percent.

In contrast, the CIA estimates China's poverty level at 10% (2001).

Part of the problem in dealing with difficult social problems in India is the country's serious over-population. India is only 18 percent bigger than Argentina in land area, but the population density in India is approximately 25 times more.

The reason for mentioning these social problems is that they place a substantial burden on the government's budget. According to the International Monetary Fund (IMF) the government' expenditures are now about 10 percent of GDP, and its social and other programs could raise that by another 10 percent.

Government spending injects liquidity into the economy putting additional upward pressure on inflation. In the Express story cited above, the Reserve Bank of India (RBI) signaled that an interest rate hike may come soon. The signal was in increase in the reverse repo rate, which encourages banks to deposit more money with the RBI, thus reducing liquidity.

The Governor of the RBI is concerned about increases in the prices of consumer durables including appliances and vehicles.

India's robustly growing middle class, responsible for these high-end purchases, could have their spending curtailed if interest rates climb.

The IMF's review of India's economy said that the country needed not only to address poverty, but also needed to reform hiring practices in the job market. These practices which make it difficult for some segments of the consumer population to find work and are partly responsible for an approximately 9.2 percent unemployment rate, according to a 2004 CIA estimate.

In another comparison with China, the CIA says unemployment there is 9.2 percent in urban areas. The CIA also cited an official 2003 Chinese source which claims that unemployment in China's rural areas may be as much as 20 percent.

Inflation in India accelerated rapidly in the final two quarters of 2004, but now is "moderating". The RBI expects inflation for the fiscal year to fall into the 5 percent to 5.5 percent range.

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