For Indian Economy, a Shot in the Arm

GOOD MORNING. Stocks in Asia closed lower today; U.S. futures are pointing to a flat start.

Governments are counting on infrastructure spending to lift their economies out of recession. And traders have been looking to China and India for much of the growth. China alone has committed to spending 80% of its $600 billion stimulus package on infrastructure. And the World Bank said Tuesday that it approved $4.3 billion in loans to India for projects to boost the country’s infrastructure and stimulus program. “Supporting infrastructure is particularly important during the current crisis,” said Roberto Zagha, World Bank Country Director for India in a statement.

India’s economy was roaring before the financial crisis, with growth hitting 9.7% in 2006-07. Now it’s more like 5-6%--sluggish by Indian standards. And analysts don’t expect India’s economy to improve much next year. Even when the economy was soaring, India badly needed basic infrastructure services. Nearly half the country doesn’t have access to electricity, the World Bank said, and millions lack access to clean drinking water and basic sanitation services. The infrastructure loans will be used to upgrade power grids, along with roads, airports and ports. It’s also going for projects to improve water supply and sanitation services for 2.1 million people.

Despite the country’s troubles, traders (and companies) seem to be betting on a healthy Indian recovery—if not next year then in 2011. Bombay’s benchmark stock index is up 77% in the last six months and 68% since the start of the year. Indian construction, energy and drug companies raised $530 million on Wednesday, anonymous sources told Reuters. And Indian firms have raised some $15 billion this year. U.S. companies are investing too. The latest sign: Ford (F) unveiled a new small car, the Figo, in India today, and the company said it plans to invest $500 million to create a regional center for small-car production.

IN OTHER NEWS:

The Fed’s Open Market Committee, which makes key decisions about interest rates and money supply, will release a statement at 2:15 p.m. In line with recent signals, the committee is expected to leave the target rate low, at 0 to 0.25%.

While surprises from the Fed can be big market movers, an announcement of more of the same is unlikely to have much of an impact, says Keith Hembre, Chief Economist for First American Following the Open Market Committee’s last statement on Aug. 12, there was a rally, and the Dow closed up 118 points for the day.

The markets will be listening for any statements on the Fed’s purchase of mortgage-backed securities. The committee may not make any new statement about the program, but it’s possible it will extend the time frame of the program to ensure things go smoothly.

And, of course, anything the Fed says about the overall health of the economy will get a lot of attention. On that front, Bernanke has to be cautious, says Doug Roberts, chief investment strategist for Channel Capital Research and author of the book “Follow the Fed to Investment Success.”

“If he’s too positive about the economy, people will start speculating that he’s going to be forced to start pulling back stimulus. At the same time, he can’t be too negative, because at that point people feel that there’s something that the Fed knows that we don’t,” Roberts says.

Above all, Bernanke will aim to “keep things as dull as possible” to avoid surprising the market, Roberts says.