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 Indian economy is growing by seven percent, nearly triple Britain’s rate, its exports are expanding at 27 percent, foreign exchange reserves top $135 billion, the stock markets are at an all-time high and inflation stands tamed at under five percent.
In a recent study, noted global consultants Goldman Sachs predicted India would overtake Britain in 2022 and Japan in 2032 to become the third largest economy in the world after China and the United States.
The manufacturing sector, which witnessed a marginal drop in the growth rate at 6.9 percent in the previous fiscal year, is expected to grow at 8.9 percent in the current fiscal, while the services sector continue to boom.
The stock markets are also performing well and the foreign institutional investors (FIIs) are evincing growing interest to transfer capital to India. The FIIs, in fact, have already invested $2.5 billion in the Indian stock markets in the current year, on top of the record $8.5 billion in 2004 and another $6.5 billion a year ago. This has resulted in the growth of $575-billion Indian economy that grew 8.2 percent last fiscal--a rate rivaled only by China’s--with a noteworthy decline in its endemic poverty and increased consumer spending.
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. “These are expected to accelerate its economic growth through 2005, making India one of the fastest growing economies,” Mundle said.
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. “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,” the World Bank said, while referring to the progress made by all sectors.
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 more than 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.
Interestingly, a new trade policy mapped by India will help its exports to grow to over $150 billion by 2009-10 with the focus on the manufacturing sector and employment generation. In fact, 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 $135 billion in its kitty, India ranks sixth in terms of foreign exchange reserves, according to the International Monetary Fund (IMF).
Little wonder, the stock markets — often a barometer for the overall performance of the economy — are ruling at an all-time high. 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 over 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.
To this end, it must be noted that foreign institutional investors have pumped more than $27 billion into the Indian stock markets since 1992 when permission was first given for overseas portfolio investment, with $10 billion flowing in one year alone. A further liberalization of policy by the government will help to attract more foreign capital in various sectors like telecom, civil aviation and insurance sectors. In fact, the economic reforms program started in 1991 by present Prime Minister Manmohan Singh — the then finance minister then — is now seeing India Inc. investing abroad in a bid to globalize 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 a report quoting 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,” the report said. But there are still some areas that are yet to reap the desired benefits of reforms. A new policy currently being promoted by Indian government will help fuel the growth of rural India where a majority of India’s billion plus population dwells.
