Emergic: Rajesh Jain's Blog

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Indian Economy

September 22nd, 2003 · No Comments

The Economist has an article on the Indian economy.

Because of a confluence of benign trends, economic optimism abounds. India’s GDP is expected to grow by at least 6% this year, thanks partly to demand from a more robust global economy, and, more importantly, to the most bountiful monsoon for many years. Almost half of India’s GDP still comes from the countryside.

In 2002, a subdued year for the world economy, India’s exports grew by 19.2%, a rate beaten only by China, whose currency, Indian exporters point out, is notoriously undervalued, whereas the rupee has, unusually, been appreciating against the dollar. However, India’s is still, in global terms, an economy that has a long way to go before it looks very much like a tiger. Last year it accounted for just 0.8% of world exports.

Asked to explain the rosier outlook, manufacturers cite one factor above all: the sharp decline in interest ratesfrom an annual rate of roughly 12% to half thatin the past five years. Besides beautifying company balance sheets, this is encouraging consumers to borrow, to buy cars, for example, and build houses.

As always, its a matter of a few steps forward, and then a few backward (an example: the recent Supreme Court decision on requiring to get parliamentary approval for the privatisation of some of the government PSUs). Thankfully, in recent times, the forward steps have outnumbered the backward steps!

When I look at Indian policy makers, I cannot help but wonder what prevents them from doing the right thing. There’s a whole bunch of intelligent people at the helm, but the result we get is much less. It is the reverse of emergence (the whole being greater than the sum of the parts) – think of it as “demergence” (my word).

On a related note, the same issue of the Economist has a survey of the world economy: “America can no longer propel the global economy. Unless other countries take over, the economic outlook is grim and globalisation is at risk.”

Tags: Emerging Markets

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