NEW DELHI, 29 December 2005 — When Manmohan Singh, considered the father of Indian economic reforms, took over as India’s premier, many questioned how he would advance an ambitious economic agenda when his government banked on the support of anti-reform leftist parties.
But this year provided an answer, as the Indian economy continued to post impressive gains. In what has been a defining year for many Indians, the economy has acquired a momentum of its own and is on a roll.
In a six-month period ending September, India’s economy showed strong growth of 8.1 percent backed by strong performance of its services and manufacturing sectors.
While an annual high growth of over 7 percent continued for the fourth year running, almost all economic parameters suggest a promising future.
“There is a sense of optimism among people since India’s economy grew faster than expected in the first part of 2005, primarily due to the sharp rise in industrial exports and buoyancy in domestic demand,” said Dr. Ram Upendra Das of the Delhi-based Research and Information Systems for developing countries, an economic-think-tank.
Investment and savings levels are surging at the same time, something that is unprecedented in the country’s economic history.
India’s stock market, among the world’s five fastest-growing, is breaking records regularly and making front-page news.
All major companies have announced new projects in various sectors. Such large investments are viewed as positive results from Singh’s economic reforms as the federal finance minister in the 1990s.
There are strong Foreign Direct Investment (FDI) inflows as well. Vast sums were invested in the technology industry. Many new jobs will be created as Intel, Microsoft and Cisco systems recently announced they will invest approximately $5 billion in the country in the next few years.
And though India has attracted much less FDI than the economic giant China’s $60 billion, India’s prospects are bright.
AT Kearney, a global management consulting firm, has predicted that India is on the “cusp of an FDI take off”. The country recently beat US as the second-most attractive investment destination worldwide after China.
It has been a watershed year for urban Indians as well. As their purchasing power grows, newer versions of luxury cars are being launched as swanky shopping malls mushroom across cities.
A rise in consumer credit, growth in home loans and a real estate boom has fueled a spending spree, economists said.
“There is a 14 percent rise in salaries which is the highest in the last five years, along with the largest job creation in the past few years. We never had it so good,” Gaurav Bhagi, an executive with ITC group said.
Many compare the Indian boom to the economic performance of China in the late 1990’s. “Unlike earlier booms, this one is across all sectors. China had gone through the same phase in the late ‘90s. An under-leveraged consumer sector and vast opportunities in retail and telecom will sustain the boom,” V. Kotak, vice president of Bombay-based Techno Share and Stock was quoted by Outlook magazine as saying.
With the economy humming along, left-wing politicians are now taking a cue from their Chinese counterparts. Leaders from the ruling United Progressive Alliance’s main partners, the Communist Party of India (Marxist), like Prakash Karat, now assert that FDI is “absolutely necessary” for India’s future.
CPI (M), which rules India’s eastern Bengal state and its leader, Buddhadev Bhattacharya, are now perceived as giving economics precedence over ideology. Keen that the state does not lose out on the benefits of economic reforms, the state leadership often cites the Chinese example and is wooing foreign investors particularly from Southeast Asia.
Perhaps encouraged by the fact that his leftist colleagues are increasingly taking to the idea of pro-actively advancing the economy, Singh recently asserted that India should target 10 percent annual growth in the next two years.
Though India’s economic advance is much in evidence, economists advise a guarded optimism while dealing with the major stumbling blocks.