India should be satisfied with the outcome of the recently concluded G20 summit in Toronto since its argument against a quick withdrawal of stimulus measures by developed nations had, to an extent, been accepted, according to US economic experts.
The communiqué issued at the end of the meeting included a commitment by advanced economies to at least halve fiscal deficits by 2013, while also making growth a top priority given the fragile global recovery and, thus, continuing current stimulus plans.
Going into the summit, India had argued against early withdrawal of stimulus by developed countries, echoing a similar warning by US President Barack Obama that it would derail economic recovery.
"Emerging markets don't have the same sort of debt levels as developed markets and so they can withdraw stimulus on a different schedule," says Kate Moore, global equity strategist with Bank of America-Merrill Lynch. But she also feels that there was enough "wiggle room" in the language of the G20 communiqué to enable different governments to interpret it according to their needs.
That wiggle room could, in fact, be a problem, according to Paul Christopher, the St Louis, Missouri-based Senior International Investment Strategist at Wells Fargo Advisors. He describes the G20 statement as lacking in concrete ideas on how and when governments with large sovereign debts, like the US, Japan and to a smaller extent, India, would begin to cut discretionary spending even as he cautioned against rapid withdrawal of stimulus. "Markets will take the vacuum of decision-making as indecision," says Christopher.
While European leaders, particularly Germany's Chancellor Angela Merkel had emphasised the need for immediate deficit reduction and austerity measures, Moore is optimistic about growth in Europe even with the withdrawal of some stimulus measures. "There will be a pick-up at least on the consumption side. Fundamentals are much stronger than just what's been supported by government spending," she says.
With the US government also trying to push through additional stimulus spending, that would be good news for India, according to Lakshman Achuthan, co-founder of the New York-based Economic Cycle Research Institute, or ECRI. He warns that one of the biggest risks to India's economic growth would be "another chapter of recession in the US".
Christopher strikes a similar note of caution on Europe, warning that if other European countries follow Germany's lead in trying to cut deficits to zero in the next 3-4 years, it would create a deflationary weight on the European economy and would impact India.
Achuthan dismisses the G20's 2013 target to halve fiscal deficits as unrealistic political posturing. ECRI is also forecasting a downturn in global economic growth. He believes that while the G20 target is "not fully a paper tiger", and that countries like Germany and France would work towards achieving it, the reality of the global industrial slowdown would become clear over the next few months and austerity programmes would lose momentum.
But while India is unlikely to be decoupled from this global slowdown, the country gets good marks among emerging economies. "India is running on its own fundamentals, it's consumer driven, much more of a domestically-oriented economy, something that we see as a very positive case for investing in emerging market equities and debt," says Moore.
While he ranks India near the bottom of the group in geo-political power among G20 nations, Christopher ranks it as a strong economic power and "among the most attractive growth stories in the world". But he also points out that the markets want to see a commitment to a smaller deficit in India, and that the government needs to cut back on discretionary spending, channel spending into infrastructure and design an efficient tax system.
According to Achuthan, "Despite domestic inflation pressures, India, relative to other emerging markets, should weather the global industrial slowdown better due to good domestic policies."
