India is among the fastest growing economies in the world. The fact is not disputed now. What makes this development story different is the fact that the economic reforms, embedded in a strong democratic polity, are equitable and inclusive.
Domestic savings have largely fueled India’s growth. But FDI continues to play a very important role in not only stepping up the investment rate but in also enabling transfer of technologies and the globalization of Indian firms. Investor confidence in India is all time high today. A.T. Kearney in ‘The FDI Confidence Index 2005’ has ranked India as the 2nd most attractive investment destination.
According to ‘World Investment Report, 2005’, India has been ranked as the second most attractive investment destination among Transnational Corporations. The foreign investors who are already doing business in India have had a satisfactory business experience in this country. According to a recent BCG study, the average return on capital employed for MNCs was 19 percent. One half of the MNCs earned higher returns in India than their global average.
All the European and American banks operating in India are more profitable here than their global average. Samsung, LG and Hyundai have each built $ 1 billion businesses in India. So far as, sustainable GDP growth is concerned, India is doing very well. What has made the world sit up and suddenly take notice of India? It cannot be India’s beauty queens, fashion shows or our cuisine. What has made the elephant dance? India’s GDP growth over a decade after the economic reforms, from 1992-93 to 2000-01, averaged 6.3%. That was unprecedented. In the last three years, the growth has been in the range of 7-8 percent! In a global context, India’s growth performance of the last decade and a half ranks among the top six in the world growth league — along with China, Korea, Thailand, Singapore and Vietnam. In PPP (Purchasing Power Parity) terms, the growth puts us among the top four in the world.
Remarkably, this growth has been achieved despite severe shocks, which could have crippled a less resilient, robust economy. So far as higher earnings and savings are concerned, there are indications that the country has managed to break away from the 2-4 per cent per capita growth average of the past. Goldman Sachs has estimated that the number of people with incomes over $ 3000 could increase by nearly 14 times in the next decade.
By 2025, according to one estimate, there could be more than 200 million new people earning incomes above $ 15,000. Household savings have moved on to a higher growth trajectory — in the late 1990s, savings of Indian households were pegged at 17 percent of GDP— but by the beginning of 2006 they were in excess of 29 percent. By next year, we are poised to catch up with the savings rate in the ASEAN region.
Referring to the integration with global economy, a report said that the before economic reforms kicked in, India’s exports accounted for less than six per cent of GDP. By the beginning of 2006, they accounted for more than 13 percent. In a decade, India’s goods and service exports have gone up by nearly eight times from $ 25 billion in 1991 to nearly $ 200 billion in early 2006.
On stability front, India appears to be the most financially solvent. India’s short-term debt to total external debt ratio is in single digits, close to only 5 per cent, far more conservative than other emerging countries, including China, Russia, Brazil and Thailand. While outlining India’s remarkable growth performance in recent years, special mention must be made of the service and manufacturing sectors — since they’ve acted as the primary engines of this growth.
According to Dr. Jeffrey Sachs, India is meeting almost 70 percent of the world BPO market requirements. In software and services, India is already a leader in the low- and medium-technology area, and will have a growing presence in high-end technology consulting within the next two years.
The 25-30 percent annual growth in services exports will continue in the next 6 years — and that will take the “invisible” exports to about $150 billion by the end of the decade.
Take for example, the costs of doing clinical research in India. It is 40-60 per cent lower than in developed countries. Since clinical trials comprises around 70 percent of total costs of a new drug, using India could bring down the average cost of $800 million for a new drug by around $200-250 million.
