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Thursday, February 1, 2007
India’s Rising Growth Potential
The recent report on BRIC countries, Goldman Sachs predicted that India would grow at a sustainable eight percent till the year 2020, and its influence on the world economy will be bigger and quicker than implied in their previously published BRICs research. Excerpts.

India’s high growth rate since 2003 represents a structural increase rather than simply a cyclical upturn. The recent growth spurt was achieved primarily through a surge in productivity; with a turnaround in manufacturing productivity being central to the ratcheting up of productivity growth. The private sector was the principal driver of this turnaround, as it improved efficiency in the face of increased competition due to the cumulative effects of a decade of reforms.

The country is well positioned to reap the benefits of favorable demographics, including ‘urbanization bonus,’ over the long term, due to the continued movement of labor from rural agriculture to urban industry and services. India has 10 of the 30 fastest-growing urban areas in the world and we estimate a massive 700 million people (roughly equivalent to the entire current population of Europe) will move to cities by 2050. This will have significant implications for demand for urban infrastructure, real estate, and service, and could play a role in increasing potential growth rates. Investments made in highways and communication will reduce travel time and enhance connectivity, and that will drive growth further. We estimate that India would need to boost its investment rate by another 16 percent of GDP to achieve and sustain a growth rate of 10 percent.

The risks to growth are: political risk, including a rise in protectionism; supply-side constraints, including business climate, education, and labor market reforms; and environmental degradation.

The last one, in fact, is critical. The country remains largely rural, and normal monsoons are the life-blood of the system. With increased urbanization, and a burgeoning need for energy, India will be a large contributor to global warming. Climate change can cause erratic monsoons, with grave implications for rural incomes and overall growth. In order not to hamper the growth process, India will need to put in place policies that are increasingly environment-friendly.

Although these risks are important, there would need to be dramatic deterioration in them to fundamentally derail the growth process. The country’s strong economic performance has been achieved during a period of rising oil prices and with the economy remaining relatively closed.

A high level of reserves, a falling fiscal deficit, low external debt, and a low current account deficit give further reassurance about the underlying strength of the current growth momentum.

In absolute terms India will remain a low-income country for several decades, with per capita incomes well below its other BRIC peers. But if it can fulfill its growth potential, it can become a motor for the world economy, and a key contributor to generating spending growth.

The SEZs hold out substantial investment opportunities in all spheres of activity. There are implications for India’s neighbors in South Asia, who also stand to benefit from spillovers, just as China’s growth aided its East and South East Asian neighbors.

Our projections are for India’s potential output, i.e., growth rates that are possible under particular conditions—rather than a central case of what will happen. There can, of course, be a big gulf between potential and reality. Given the considerable implications, India’s ability to turn potential into reality should be of pressing importance not only for the fate of its 1.1 billion citizens, but also for the progress of the global economy.

Pitroda for ‘made-in-India’ mobiles
Knowledge Commission Chairman Sam Pitroda has pitched in for “made-in-India”mobile handsets in order to capitalize on the rapid growth in the communications space.

Pitroda said telecom manufacturing in the sub-continent would be a win-win situation for all stakeholders as the demand for mobile handsets, including replacement for old handsets, was set to cross the 500-million mark in the next five years.

According to the global handset industry update of Merrill Lynch, the world market growth will be driven by India and China, with a combined handset volume growth of 21 percent CAGR from 2005 to 2010. Mobile penetration in India is projected to reach 411-million mark by 2010 as against 76 million in 2005, achieving a five-year CAGR of 40 percent.

“Indian telecom manufacturers should grab a major share of the fastest growing mobile handsets market in the world, as no other country is witnessing such a scorching pace of growth as India,” said Pitroda.

Eight Indian American in Forbes’ 2007 Midas list
Eight Indian American entrepreneurs have made it to the Forbes’ 2007 Midas list, an annual ranking of the US’ top 100 tech dealmakers.

Leading the Indian pack is tech wizard Ram Shriram, placed fourth on the list released last week. Two years ago, Shriram was one of just two Indian Americans to find a place in the Forbes’ list of 400 richest Americans, the other being acoustics pioneer Amar Bose.

Behind Shriram is Arjun Gupta at number 37. An MBA from Stanford, he is the founder and managing partner of TeleSoft Partners, a venture capital firm that focuses on high-tech start-ups.

Other Indian Americans on the Midas list include first timer Parag Saxena at No-38, Rob Soni at No. 42, Promod Haque, who was vaunted from the number one position two years ago, held the 52nd position this year; Navin Chaddha at No-58; Srinivas Akkaraju at No-84 and Ravi Mhatre fitted in the 95th position.

Forbes’ recognition of Shriram comes from his funding of Naukri.com, India’s leading classified site dealing with jobs, matrimony and real estate. He has also invested in Mumbai’s PayMate and travel site Cleartrip. His claim to fame has been his association with Google, where he has been a founding board member, director and angel investor. In 2005, his net worth was put at $1.3 billion. A technology industry insider for over 25 years and a former executive with Netscape and Amazon, Shriram founded his own company, Sherpalo, in California in 2000.

“These are heady times indeed for the venture capital market. Venture firms raised $25 billion in new money last year. In the past three years, the length of a typical investment cycle, they have raised $75 billion. Expect plenty of blockbusters — and grand busts — in the near future,” says Forbes.

The top five on the Forbes list are Michael Moritz of Sequoia Capital, L. John Doerr of Kleiner Perkins Caufield & Byers, Andreas von Bechtolsheim of Sun Microsystems, Ram Shriram of Sherpalo, and David Cheriton of Stanford University.

Get smart Indians: Bush
George Bush has invited Indians to the U.S. He wants smarter Indians to help companies develop technologies and solve the country’s energy problems, he mentioned while addressing the employees of Science major DuPont on energy issues at Wilmington, DE.
In this regard, the comprehensive immigration bill proposed by the Bush administration has shown keen interest in hiking the number of H1-B visas.

The H1-B visa program, proposed to expand to 115,000 and build in a 20 percent annual increase, would meet the shortage of highly skilled people in the technology space, say company executives. The quota, which was full by June 2006 for the current year, recorded over half of the visas from the category for temporary skilled workers being presented to Indians alone.

Critically, inviting more foreign workers will only displace American workers and drive down salaries. The visa issue has been subsumed by a more controversial debate—granting citizenship to an estimated 11 million illegal immigrants, with an estimated 280,000 from India.

The new bill will be introduced in the 110th Democratic controlled Congress soon — the last Congress had rejected this measure.


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