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India will sustain over 8% growth rate |
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Indian Minister of State for Commerce and Industry said in New York last week that given the strong fundamentals of the Indian economy, it will be able to sustain a growth rate of over 8 per cent over the next ten years and continue to attract investments in services and manufacturing sectors, "Despite some developments that are not favourable, we will still manage to have robust growth," Ashwani Kumar said.
Pointing out to the strength of the country's economy, Kumar told investors attending the annual meeting of the India Investment Forum that the nation would remain on course on the path of economic reform and continue to put investor friendly policies in place.
Supporting the steps being taken by Washington to deal with the financial crisis, Kumar said the US government's action affirms the fact that the State has interventionist as also moderating and stimulating role in an "absolutely critical" situation.
A unique feature of the India's growth story has been that it has uplifted one per cent of the population out of absolute poverty every year since 1985. So far 491 million people have been lifted out absolute poverty and another 290 million will out that situation by 2020, he said.
He pointed out that it costs 60 per cent to set up fully integrated competitive manufacturing facility in India as compared to the rest of the world.
"Our productivity has achieved European standards at 20 per cent of cost and 21 of 100 best running companies in emerging economies are in India," he said.
So far, India’s growth picture has been better than might have been hoped for. The drop in oil prices over the last couple of months has provided huge relief, but the question is whether prices are going back up again. Meanwhile, at 25 per cent in dollar terms (28 per cent in rupee terms), the first quarter’s export growth is remarkable. While the index of industrial production shows a sharp deceleration, July was better than the April-June quarter; even in the June quarter, corporate sales showed growth. Against that, however, growth in advance tax payments seems finally to be slowing down, suggesting that reality is catching up with companies as margins get squeezed.
The various official growth forecasts for the year have moved from 8 per cent-plus to 8 per cent-minus, with only the pessimists saying it will fall to as low as 7 per cent — which the country can live with in a downturn. The question that begs to be asked is about the year to follow. Meanwhile, with overseas investors pulling out of the stock market, the Reserve Bank will have to pay attention to domestic liquidity issues; the market stabilisation bonds may have to be bought back in order to pump rupees into the system. The problem of course is that inflation is still at over 12 per cent. The watchword has to be caution.
India’s prospects vis-à-vis global slowdown: At the last week’s Economic Times, Awards function, jury whoparticipated in a lively discussion on India’s prospects in the backdrop of a global slowdown felt the economy will grow by 7% to 8% in 2008-09. The chairperson of the ET jury and global head of Pepsico, Indra Nooyi, chose to link India’s fate more directly with that of the United States.
She said India’s GDP would most likely grow at 6% higher than that of the United States. So, if the US growth rate is, say 1% in 2008, then India’s GDP should grow at 7%. In effect, Nooyi clearly believes in pretty much a linear coupling of growth between India and the US.
The head of global markets for Deutsche bank, Anshu Jain, was optimistic that India could post a GDP growth of up to 7.5%. So were other jury members such as Stanchart Global Head Peter Sands and HDFC chairman Deepak Parekh. Indeed, what was interesting was a general note of optimism among these business leaders about India’s domestically driven growth story.
Union minister for commerce and industry Kamal Nath too pointedly argued that India will grow even bigger as a “parking lot” for global investments. It is here that consumer demand will grow consistently over the next few decades and give the best return on investment.
Of course, the debate over how much India is coupled or decoupled with the United States economy remains a hotly contested subject. If Indra Nooyi is to be believed there is a one-to-one relationship between the two. Sure, there are many who do not subscribe to this.
They claim India may be coupled in a short to medium term, but is certainly decoupling in the longer run. However, there seems to be a consensus that in the short to medium term India, and indeed other fast growing emerging economies, will get hit by a US recession.
Even if India’s GDP growth decelerates by 2-3 percentage points, it is bound to cause pain. Businesses will have to undergo belt tightening through 2008 and 2009. Let us face it. The unprecedented growth party of 2003-08 could not have gone on forever. However, even as the three big OECD economic blocs — US,EU and Japan — gradually slip into a recession, the only beacon of hope is provided by the growing markets of India, China and the other emerging economies.
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