View from Delhi: Big upswing in economic fortunes impresses IMF

Things are looking up in India. Even the IMF (International Monetary Fund), generally a severe critic of Indian performance, is impressed. It said this week that India is headed for the highest GDP growth in the region, around six per cent, and maybe even more next year when the results of good rains percolate down to the economy.

Bullish mood

IMF is not the only one so bullish on India. The Asian Development Bank also places this year's growth at six per cent, hinting that it could be more. And that is not only because of good rains. Industry is also picking up and grew by nearly six per cent in the last quarter, almost twice the figure last year.

High expectations about industrial growth are also reflected in the stock market which is now at two-year high. The Bombay sensex has gone up by almost 50 per cent since May. Last year, most big companies did well despite a setback in the farm sector. Even government companies have posted unusually good results, with record sales and profits.

ONGC (Oil and Natural Gas Corporation) whose main revenues come from offshore oil wells near Mumbai, has declared a record 300 per cent dividend, which puts nearly Rs9,000 crore into government coffers.

What explains this big upswing in economic fortunes? The pundits have their explanations - good monsoons are one - but this is not the whole story. The rains have certainly helped but there are also other solid factors. One is the growing middle class, which now accounts, according to some experts, for as much as a third of the population, or over 300 million people, more than the entire population of Europe.

You see these new middle class everywhere, in cities as well as towns, and even in affluent villages. In Delhi, you cannot get a table in five-star hotels after 8 pm, unless you have booked in advance.

Upscale restaurants, with French and Italian menus, are packed with yuppies flashing their credit cards. During the festival season, and there are festivals all the year round, it is difficult to get a seat on the plane, if you are going to Goa, a hot destination, or to Singapore.

The new middle class has money to burn, and it is not too shy to burn it.

There are fancy shops and shopping malls opening up every week. Delhi will soon have at least half a dozen real American-style malls, complete with McDonalds and Baristas. Land is not cheap and roads are not all that good, but no matter.

According to an estimate, over Rs1 trillion will be invested in the next few years in Delhi and Mumbai on new malls. Among the business groups involved in this new line are Goenkas, Tatas, Bajaj and Birlas, who used to be proper manufacturers and often looked down upon mere traders.

Scope for growth

Close to 10 million square feet of mall space are being developed across the country. Around seven million will be completed this year, and the scope for growth is enormous.

The malls account for less than 2 per cent of total retail market now placed at Rs9 trillion. In another five to seven years, the ratio is expected to go up to 10 per cent.

India has come a long way from the licence-quota raj, when you bought what the government told you to buy. Now it's the consumer, not some babu in the ministry, who is the king!

The writer is an India-based senior economic advisor.