InFocus | India
Shifting into overdrive
The results of liberalising India's strategic sectors such as telecom, banking, aviation and real estate are now beginning to show.
- By Rajendar Menen, Gulf News Report
- Published: 00:00 August 14, 2006
- India is expected to become the world's third largest economy after the US and China.
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The results of liberalising India's strategic sectors such as telecom, banking, aviation and real estate are now
beginning to show.
The Indian economy is in overdrive. A stable eight per cent annual growth, rising foreign exchange reserves of close to $140 billion, a booming capital market, foreign direct investment (FDI) over $8 billion, and a 20 per cent plus surge in exports has made the bull run a regular feature of the Indian economy over the last few years.
The gross domestic product (GDP) grew 7.4 per cent in the first quarter of 2005-06 and 6.6 per cent in the second quarter of the current year, compared with 5.3 per cent and 8.6 per cent in the corresponding quarters of the previous year.
The Economic Survey 2005-06 estimates the GDP will grow at 8.1 per cent. Growth of GDP at constant prices in excess of eight per cent has been achieved by the economy in only five years of recorded history, and two out of these five have been in the last three years.
Prospects of agricultural production in 2005-06 are bright. The agricultural and allied sector's growth in 2005-06 is projected at 2.3 per cent. With good crop prospects, food grain production is expected to increase to 209 million tonnes (MT) in 2005-06 from 204.6MT in 2004-05.
The dynamic growth in recent times is due to a combination of factors: a new industrial resurgence; a pick-up in investment; modest inflation in spite of spiralling global crude prices; rapid growth in exports and imports with a widening of the current account deficit; laying of some institutional foundations for faster development of physical infrastructure; progress in fiscal consolidation; and the launching of the National Rural Employment Guarantee (NREG) scheme for inclusive growth and social security.
The industrial sector too has been on a high. The rate of growth of the industrial sector as measured in terms of Index of Industrial Production (IIP) during April-December 2005-06 was 7.8 per cent.
The manufacturing sector alone contributed 8.9 per cent during this period.
India is the world's second largest producer of food after China. Food processing is a key industrial sector for India, accounting for a gross output of more than $69.4 billion, out of which value-added food products comprise $22.2 billion.
Size of the semi-processed and ready-to-eat packaged food industry is more than $1 billion, and it is growing at over 20 per cent a year.
The total processed food production in India is likely to double in the next 10 years. In Q3 of 2005/06, the total net profit of 12 major companies increased 174.83 per cent to $15.8 million from $5.75 million in Q3 of 2004/05. Total sales increased by 20.23 per cent to $261.56 million during October-December 2005.
Industrial growth is driven by robust performances from manufacturing and construction sectors. Within industry, while manufacturing growth has accelerated steadily from 7.1 per cent in 2003-04 to 9.4 per cent in 2005-06, construction growth has been in double digits in each of the last three years.
Substantive commercial bank credit flows to the housing and real estate and retail sectors continue to provide support to the boom in construction and consumer durables.
India's merchandise exports (in dollar terms and customs basis) have been recording annual growth rates of more than 20 per cent since 2002-03. In 2004-05, exports grew 26.2 per cent - the highest annual growth rate in the last three decades - to cross $80 billion.
Five major sectors - gems and jewellery, engineering goods, petroleum products, ores and minerals, and chemicals and related products - were the key drivers.
Despite recording a somewhat lower growth rate of 18.9 per cent, exports during April-January 2005-06 have already reached $74.9 billion and are well on their way to touch the $92 billion target set for 2005-06.
Services export
Services exports grew 71 per cent in 2004-05 to $46 billion, and 75 per cent to $32.8 billion in April-September, 2005. In 2004-05, software service exports grew 34.4 per cent to $17.2 billion and 32 per cent to $10.3 billion in the first half of 2005-06.
Prime Minister Manmohan Singh believes India should aim for a consistent 10 per cent growth rate. "For this to happen, the savings rate needs to increase, agricultural output has to make a quantum leap and infrastructure has to be substantially upgraded."
According to Rajeev Malik, economist with JP Morgan, Singapore, "India's growth is much better than expected. The strength is mainly on account of industry and services, with manufacturing continuing to do quite well."
India is one of the world's fastest growing economies, is increasingly open to foreign competition and is attracting increasing amounts of overseas funds. In total, $8.5 billion has been invested in Indian shares from around the world.
But Finance Minister P. Chidambaram feels the economy "must be more open to foreign competition to accelerate growth further."
India is expected to become the world's third largest economy after the US and China. According to Dr. William T. Wilson, chief economist for Keystone India, India's economy is expected to equal or surpass Japan as the world's third largest sometime in 2006.
"The results of liberalising strategic sectors such as telecom, banking, aviation and real estate are now beginning to show."
Wilson points out that India's economy measured in PPP (purchasing power parity) terms will eclipse the $4 trillion mark in 2006, making it equal to or greater than Japan's. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy.
The transformation into a tri-polar economy, along with China and the US, will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe.
"India has investment opportunities of around $500 billion in the next five years. Of this, the infrastructure sector alone presents opportunities worth $250 billion.
"The Investment Commission of India estimates investment opportunities of $130 billion in manufacturing in the next five years alone. We expect foreign investors to be major players in this segment," says Commerce and Industry Minister Kamal Nath.
Investment opportunities
"There are opportunities in areas like auto-components and automobiles, drugs and pharmaceuticals, biotechnology, chemicals and petrochemicals, agro and food processing and fashion and textiles, which are registering double-digit growth," he says.
FDI in India is expected to cross $12 billion during 2006-07 fiscal. The government estimates that out of $12 billion, $8 billion should come in the form of equity and the balance from re-invested earnings and other capital inflows.
Taiwan, Japan and South Korea are the target markets that are expected to pump in major share of FDI in the Indian capital market, in addition to the US, UK, Germany, Netherlands, Germany and France. India is on a stupendous run.
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