G-20 LONDON SUMMIT: EMERGING ECONOMIES FOCAL POINT

The G-20 London summit on April 2, 2009, part of the annual forum of the 20 largest economies that convenes to review the global trade and economic scenario, marked the recognition of the central role that the emerging economies will play in the revival of the global economy.

The financial crisis that gripped the global economy since last year is expected to result in a drop of 9% in global trade in 2009, according to the World Trade Organisation estimates. The developed countries’ exports are set to fall by as much as 10%, while developing countries will see a marginal contraction of 2%-3% in their shipments.

The G-20 shunned protectionism across the board to promote global trade and investment. The forum extended a $1.1 trillion for international credit and additional $250 billion through the International Monetary Fund (IMF) as part of the few decisive steps to revive the global economy. This capital infusion will benefit the emerging economies like India and China, particularly in the services exports. The two countries figure among the top 10 in services exports, with China contributing 3.7% at $137 billion closely followed by India contributing 2.8% at $106 billion of the world’s total in 2008.

G-20 itself is a manifestation of emerging economies with more weightage in the global economic affairs, as compared to the G-8, a group of eight largest industrialized nations. Some assertions, however, such as the regulations to curb tax havens, could negatively impact capital flows into emerging economies.

CLEARING THE FDI HIGHWAY

The Government of India has yet again unfolded the red carpet to Foreign Investments by augmenting its Foreign Direct Investment (FDI) guidelines to provide the much needed capital injection to cash-starved sectors, such as retail, real estate & infrastructure, telecommunication, among others, that need capital infusion of more than $600 billion over a period of five to 10 years.

The new guidelines state that foreign holdings in a company with majority control of Indians will not be treated as indirect foreign investment in any downstream subsidiary, thus expanding investment opportunities for global investors seeking to be a part of the growth story of the world’s second fastest growing economy.

The easing of FDI norms fall in line with other growth initiatives and stimulus packages announced by the government last year, which have started showing revival trends in key sectors like steel, cement, automobile, food and beverages and fast moving consumer goods (FMCG).

The cement sector grew 10% in December 2008 as compared to November and the year on year increase of 11%. Steel declined steadily through September, October and November last year. The sector recovered in December 2008 and January 2009 touching the May 2008 figure of 22.86 metric tonnes when the sectoral growth rate was 4.1%. The automobile sector grew too, with the January 2009 figures in the passenger vehicles sales showing a 32% rise over December 2008 and commercial vehicles at 23% over a similar time frame. FMCGs and food & beverages have recorded a year on year growth of 26.4% and 28% respectively for the quarter ended December 31, 2008. Such growth trends across sectors send assuring signals of economic revival and corresponding profitable investments for investors.