Union Budget should focus on raising non-tax revenue: CLSA

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Q: Yesterday's economy spoke about GDP growth between 7.75% and 6.25% depending on which way the global economy swings, midpoint at 7%, how close to that midpoint are you penciling in for GDP growth and do you think the chances are that it will end up closer to 7.75% or closer to 6.25%?

A: We have upgraded our GDP growth forecast, we are now currently looking at a 6.3% growth for the current fiscal year and that's up from 4.6% and for FY2010-11 and we are now looking at about 7.3% up from 6.3%. So that's kind of where I stay and I guess I am at the lower range, but those are the headlines numbers and they look low because there is going to be a continued drag from the exports side and again the consumption side will lag in the recovery. However, India is very much on track for an investment led upturn to take route by the end of this year. We saw through the Q1 numbers and also the historical revisions to the GDP numbers in the previous three quarters. The underlying momentum is stronger and I am sure an export hit is coming through but it will be less aggressive than what we are seeing in other Asian countries. The most important thing is the twenty-six month long manufacturing downturn has now come to an end and all these factors re-enforce our view that the next recovery is in sight. The next recovery shows the global environment isn't great. India has always been a domestic story and recovery has been linked to the stabilization of the domestic economy which looks as if it is happening now.

Q: How good or bad is that global backdrop when you say its going to be tough, how tough will it get because yesterday the markets reacted quite dramatically to the unemployment figure that they saw.

A: As you know CLSA has a very bearish view on the global down turn for some time now and our global view remains unchanged. Just to put some numbers, we are looking at the US contracting by 3.5% this year and half percent next year, we are looking at Europe contracting by even more and by about 2% next year. Our view on the US economy is that the next recovery will only be visible in the second half of next year and the US Consumer will continue to cut back on spending through the end of 2010 and the employment numbers and the non-farm payroll numbers which were fairly bad and that re-enforces our view that while wages are under pressure, while unemployment is rising and our view is that it will only peak at 11% in the Q2 of next year, against this backdrop the US consumer is going to continue to retrench on spending and that is negative for Asian exporters because Asian exporters are mainly exporters of consumer goods.