Booming India key to global economic growth
Monday, 13 August 2007, 07:00 Hrs
New Delhi: Sixty years after independence, India has finally entered a virtuous circle of long-term economic growth, with strong fundamentals and a booming young population, forcing the world to sit up and take notice. After decades of being shackled by the so-called 'Hindu rate of growth' - well below five percent - the Indian economy has soared at an average rate of over seven percent every year in the last decade and at around nine percent in the past three years. "We expect the economy to grow at around nine percent in 2007-08 as well, while inflation is expected to be around four percent," says C. Rangarajan, chairman of Prime Minister Manmohan Singh's high-profile Economic Advisory Council. As more and more people shift from agriculture to manufacturing and services sectors and move from villages to towns, economists expect the rate of growth to go up by a couple of percentage points over the next decade. This growth is fuelled by several factors. At over $20 billion per annum, India receives more inward remittances than any other country from the 25 million people of Indian origin and non-resident Indians living abroad. The boom in the information technology (IT) and IT-enabled services (ITES) has seen India become the back office of the world for vital functions that range from school homework guidance to telemarketing and airline booking services. The Indian IT-ITES industry notched up $39.6 billion in revenues in 2006-07, up 30.7 percent from the previous year. There is also an air of justified optimism about India's long-term economic prospects today and experts say there are at least three reasons for this. First, savings and investment rates are rising and are presently at around 32-34 percent of India's gross domestic product (GDP). Analysts believe they may rise to 37-40 percent of the GDP by 2013. Second, India is now in a demographic situation where a significant part of its 1.17 billion population is a youthful asset. Ancient India is today home to the largest percentage of youngest population in the world with more youth below 25 years of age than any other nation. This means India is one of the few countries that will not have to worry about a labour shortage for decades to come. This will also have the automatic effect of pushing up the growth and savings rates and of servicing the global economy. Third, despite a full range of political philosophies from Left to Right in the country, there is now a broad national consensus in favour of economic reforms, with disagreements only in detail and manner of execution - as seen since 1991. India is now focussing on investing more and more in infrastructure - both urban and rural - and in social sectors, especially education and healthcare. The government's official estimate places the fiscal need towards infrastructure at a whopping $320 billion over the next five years through investments from the public and private sector, and from domestic and foreign sources. In some areas, spectacular results are already visible. The telecom user-base crossed the 212 million mark in April 2007, making India one of the largest telecom markets in the world. Ernst and Young says India's telecom sector will see investments of up to $25 billion being pumped in over the next five years with similar prospects in areas like airports, roads, ports and energy. Indian firms have responded to take advantage of this environment. Industrial production grew 11.3 percent for 2006-07 - crossing the double-digit mark for the first time since 1995-96. Little wonder Standard and Poor's has now eight Indian companies in its 'Global Challengers List'. As the prime minister says, an important strength of the Indian economy today is the country no longer faces any insurmountable external constraint on growth and both manufacturing and services sectors are showing dynamism. In fact, foreign direct investments into India exceeded the quantum of money pumped by foreign funds since 1996 for the first time ever, showing the confidence that global majors now have about their investments in the country. There are today very few sectors that have investment constraints. A liberal and transparent FDI policy for industrial, services and infrastructure sectors is now in place. As a result, Rangarajan expects foreign investment of $15 billion in 2007-08, up from $8.4 billion the previous year. India has also undertaken region-specific trade liberalisation, entering into trade pacts with countries like Singapore, Thailand and Sri Lanka, with more such agreements on the drawing board. The agreement with the US on civilian nuclear energy will open up possibilities for growth of energy in the country. Sixty years after India's independence, the state of the Indian economy provides many good reasons to look back with satisfaction, and to move forward with confidence.