With economy booming, India rides on high growth turnpike
With economy booming, India rides on high growth turnpike
Arvind Padmanabhan
1/29/2005
From a country that could barely sustain six weeks of imports 13 years ago, India today is well on its way to becoming an economic success story with strong macro fundamentals and an attractive base for foreign investment.
The $575-billion economy grew 8.2 percent last fiscal -- a rate rivalled only by China's -- with a noteworthy decline in its endemic poverty, increased consumer spending, a booming services sector and $120 billion in foreign exchange reserves.
In terms of purchasing power parity, compiled by the World Bank, India is the fourth largest economy after the US, China and Japan.
"India is riding on an underlying long-term growth path. It is in a rising phase of business cycle and its services sector is booming," said Sudipto Mundle, chief economist for the Asian Development Bank in India.
"These are expected to accelerate its economic growth through 2004 and 2005, making India one of the fastest growing economies," Mundle told IANS.
It is equally reassuring that the country's robust growth rate is backed by a moderate inflation level, low interest rates, comfortable food stocks, vibrant exports and a current account surplus, among other economic indicators.
"The Indian economy is on a roll," said Subir Gokran, senior economist with independent rating agency CRISIL India, which has a strategic and financial alliance with global major Standard and Poor's.
"It has already affected the lives of many people in terms of increase in consumer spending and lowering of interest rates for buying consumer goods," Gokran told IANS.
From housing and automobiles to home appliances and mobile phones, the consumer boom has not only pervaded the cities but has begun to percolate down to smaller towns and even its once poverty-steeped and stark villages.
Once considered elitist gizmos, mobile phones, for example, are becoming commonplace in both rural and urban India. The country adds more than one million new mobile phone users to its 38-million subscriber base every month, making it one of the world's most sought after markets in this segment.
Yet, a sector that has grabbed international attention in the past few years is the country's money-spinning outsourcing industry comprising some 425 firms that cater to 3,000 of the world's top companies.
This sector grew by 46 percent last fiscal to earn India $3.6 billion in exports and is projected to grow another 40 percent in the current fiscal to cross the $5-billion mark.
General merchandise exports have also been on the rise, crossing the $50-billion mark in 2001-02 and topping $60 billion the next year, with a target of over $70 billion in the current fiscal. Commerce and Industry Minister Kamal Nath has promised to unfold a far-reaching trade policy soon that will help India's exports to grow to over $150 billion by 2009-10 with the focus on the manufacturing sector and employment generation.
One of the signs of maturity in the Indian economy has been the surge in foreign exchange reserves, which in mid-1991 stood at such a precarious level as could fund barely six weeks of imports, threatening a balance of payments crisis. Today, however, with $120 billion in its kitty, India ranks sixth in terms of foreign exchange reserves, according to the International Monetary Fund.
The country also has a well-developed stock market. On any given weekday, more than 10,000 computer terminals at 7,500 brokerages in 400 cities come alive to buy and sell securities of some 9,000 listed companies. A nation where the tradition of trading dates back over a century, India has the third-largest investor base of 20 million shareholders, next only to the US and Japan.
Little wonder foreign institutional investors have pumped $27 billion into the Indian stock markets since 1992 when permission was first given for overseas portfolio investment, with $10 billion flowing in during 2003-04.
Foreign direct investment has also been pouring in steadily, though not at the levels seen in China, which attracts 15 times more. The net inflow of such investments stood at $4.5 billion last fiscal and $4.7 billion in the 2002-03.
The penchant to attract overseas investment is also seeing unprecedented competition among state governments, where Maharashtra, the country's most industrialised state in western India whose capital is Mumbai (formerly Bombay), tops the list in terms of inflows, followed by Delhi, Tamil Nadu, Karnataka and Gujarat.
Finance Minister P. Chidambaram, while presenting India's budget for the current fiscal on July 8, announced a further liberalisation of policy by upping the foreign investment limits in the telecom, civil aviation and insurance sectors.
In fact, the economic reforms programme started in 1991 by present Prime Minister Manmohan Singh - who was the country's finance minister then - is now seeing India Inc. investing abroad in a bid to globalise operations.
Indian companies acquired 49 overseas firms in 2003 with a total outgo of nearly $1.7 billion, according to India Advisory Partners, an independent group providing advice on Indian deals to firms worldwide.
"Indian companies were sitting on a huge cash pile but few firms dared to go out and buy firms overseas due to the depressed market conditions and geopolitical worries," said noted business analyst D.H. Pai Panandiker.
"All that has changed for the better and corporate India is finding it the most appropriate time to expand its reach overseas. Acquisitions are now an important driver in the evolution of Indian multinational companies," he said.
But there are still some areas that are yet to reap the desired benefits of reforms, notably the farm sector that employs 58 percent of the country's billion-strong population and accounts for 22 percent of its gross domestic product.
Although this sector grew by 9.1 percent in 2003-04, it was on the back of 5.2 percent contraction the previous fiscal. The average medium-term growth in farm output has been just 2.7 percent.
"The slowdown in agriculture in the last five years is a worrying factor," said Montek Singh Ahluwalia, who was recently named deputy chairman of the Planning Commission that formulates India's long-term development plans.
"If the poor growth in the agrarian sector is not reversed, achieving the targeted growth of 7-8 percent will be difficult," the Oxford-educated Ahluwalia, who has just returned from a stint in International Monetary Fund (IMF), told IANS, adding that the sector requires a fair dose of harsh measures.
But this is an issue that Prime Minister Manmohan Singh is well acquainted with, having coined the phrase "economic reforms with a human face" that captures the crux of his government's socio-economic agenda for governance.
In his first address to the nation in end-June, while promising a new deal for rural India where a majority of India's billion plus population dwells, he also listed the trop priorities for his government as improving the country's social and economic infrastructure.
Arvind Padmanabhan
1/29/2005
From a country that could barely sustain six weeks of imports 13 years ago, India today is well on its way to becoming an economic success story with strong macro fundamentals and an attractive base for foreign investment.
The $575-billion economy grew 8.2 percent last fiscal -- a rate rivalled only by China's -- with a noteworthy decline in its endemic poverty, increased consumer spending, a booming services sector and $120 billion in foreign exchange reserves.
In terms of purchasing power parity, compiled by the World Bank, India is the fourth largest economy after the US, China and Japan.
"India is riding on an underlying long-term growth path. It is in a rising phase of business cycle and its services sector is booming," said Sudipto Mundle, chief economist for the Asian Development Bank in India.
"These are expected to accelerate its economic growth through 2004 and 2005, making India one of the fastest growing economies," Mundle told IANS.
It is equally reassuring that the country's robust growth rate is backed by a moderate inflation level, low interest rates, comfortable food stocks, vibrant exports and a current account surplus, among other economic indicators.
"The Indian economy is on a roll," said Subir Gokran, senior economist with independent rating agency CRISIL India, which has a strategic and financial alliance with global major Standard and Poor's.
"It has already affected the lives of many people in terms of increase in consumer spending and lowering of interest rates for buying consumer goods," Gokran told IANS.
From housing and automobiles to home appliances and mobile phones, the consumer boom has not only pervaded the cities but has begun to percolate down to smaller towns and even its once poverty-steeped and stark villages.
Once considered elitist gizmos, mobile phones, for example, are becoming commonplace in both rural and urban India. The country adds more than one million new mobile phone users to its 38-million subscriber base every month, making it one of the world's most sought after markets in this segment.
Yet, a sector that has grabbed international attention in the past few years is the country's money-spinning outsourcing industry comprising some 425 firms that cater to 3,000 of the world's top companies.
This sector grew by 46 percent last fiscal to earn India $3.6 billion in exports and is projected to grow another 40 percent in the current fiscal to cross the $5-billion mark.
General merchandise exports have also been on the rise, crossing the $50-billion mark in 2001-02 and topping $60 billion the next year, with a target of over $70 billion in the current fiscal. Commerce and Industry Minister Kamal Nath has promised to unfold a far-reaching trade policy soon that will help India's exports to grow to over $150 billion by 2009-10 with the focus on the manufacturing sector and employment generation.
One of the signs of maturity in the Indian economy has been the surge in foreign exchange reserves, which in mid-1991 stood at such a precarious level as could fund barely six weeks of imports, threatening a balance of payments crisis. Today, however, with $120 billion in its kitty, India ranks sixth in terms of foreign exchange reserves, according to the International Monetary Fund.
The country also has a well-developed stock market. On any given weekday, more than 10,000 computer terminals at 7,500 brokerages in 400 cities come alive to buy and sell securities of some 9,000 listed companies. A nation where the tradition of trading dates back over a century, India has the third-largest investor base of 20 million shareholders, next only to the US and Japan.
Little wonder foreign institutional investors have pumped $27 billion into the Indian stock markets since 1992 when permission was first given for overseas portfolio investment, with $10 billion flowing in during 2003-04.
Foreign direct investment has also been pouring in steadily, though not at the levels seen in China, which attracts 15 times more. The net inflow of such investments stood at $4.5 billion last fiscal and $4.7 billion in the 2002-03.
The penchant to attract overseas investment is also seeing unprecedented competition among state governments, where Maharashtra, the country's most industrialised state in western India whose capital is Mumbai (formerly Bombay), tops the list in terms of inflows, followed by Delhi, Tamil Nadu, Karnataka and Gujarat.
Finance Minister P. Chidambaram, while presenting India's budget for the current fiscal on July 8, announced a further liberalisation of policy by upping the foreign investment limits in the telecom, civil aviation and insurance sectors.
In fact, the economic reforms programme started in 1991 by present Prime Minister Manmohan Singh - who was the country's finance minister then - is now seeing India Inc. investing abroad in a bid to globalise operations.
Indian companies acquired 49 overseas firms in 2003 with a total outgo of nearly $1.7 billion, according to India Advisory Partners, an independent group providing advice on Indian deals to firms worldwide.
"Indian companies were sitting on a huge cash pile but few firms dared to go out and buy firms overseas due to the depressed market conditions and geopolitical worries," said noted business analyst D.H. Pai Panandiker.
"All that has changed for the better and corporate India is finding it the most appropriate time to expand its reach overseas. Acquisitions are now an important driver in the evolution of Indian multinational companies," he said.
But there are still some areas that are yet to reap the desired benefits of reforms, notably the farm sector that employs 58 percent of the country's billion-strong population and accounts for 22 percent of its gross domestic product.
Although this sector grew by 9.1 percent in 2003-04, it was on the back of 5.2 percent contraction the previous fiscal. The average medium-term growth in farm output has been just 2.7 percent.
"The slowdown in agriculture in the last five years is a worrying factor," said Montek Singh Ahluwalia, who was recently named deputy chairman of the Planning Commission that formulates India's long-term development plans.
"If the poor growth in the agrarian sector is not reversed, achieving the targeted growth of 7-8 percent will be difficult," the Oxford-educated Ahluwalia, who has just returned from a stint in International Monetary Fund (IMF), told IANS, adding that the sector requires a fair dose of harsh measures.
But this is an issue that Prime Minister Manmohan Singh is well acquainted with, having coined the phrase "economic reforms with a human face" that captures the crux of his government's socio-economic agenda for governance.
In his first address to the nation in end-June, while promising a new deal for rural India where a majority of India's billion plus population dwells, he also listed the trop priorities for his government as improving the country's social and economic infrastructure.
