India’s Growth

[via Reuben] WSJ writes that India is posied for faster growth and “economists expect it to join China as a powerful Asian engine.”

Government officials are predicting that India’s inflation-adjusted growth for the current fiscal year, which ends March 31, may “significantly exceed” New Delhi’s earlier forecast of 6% growth and could approach 8%. Private investment firms concur, estimating growth of as much as 7.5% and citing the potential for even faster expansion down the road.

Indians increasingly feel that their country has chosen the right balance of growing its domestic economy and its export economy at the same time. And no country, many Indians feel, is better positioned to profit from the global boom in information-technology services than their own.

Economists cite several cyclical factors as contributors to India’s growth this year. The country is enjoying an excellent monsoon season after last year’s drought, providing hundreds of millions of farmers with more cash to buy everything from cellular phones to motorcycles. Meanwhile, companies are again investing significantly in their new production facilities, after many suffered from overcapacity following an anticipated boom in the mid-1990s that never materialized. A July survey of business confidence by a leading Indian institute showed the most optimistic outlook since mid-1995.

Important structural changes in the Indian economy are also driving consumption and investment patterns. Construction of everything from ports to telecommunications networks has accelerated and Prime Minister Atal Bihari Vajpayee’s support for a $10 billion nationwide road-construction program is expected to be a boon for cement and steel companies. Banks are reporting a 30% rise in loans to consumers and a 30%-35% increase in home mortgages, as they shift from focusing on corporate loans to the country’s growing middle class, an estimated 250 million Indians.

As Indian companies reduce costs and focus on competing with foreign firms in India’s increasingly open economy, their earnings are also improving. Investment banks such as Citigroup’s Smith Barney are projecting earnings growth of 25% to 30% among top-tier Indian companies, as they benefit from cheaper credit and growing demand for their services and products from foreign companies. In addition to operating call-centers and back-office operations, Indian companies also are increasingly being tapped to produce high-end products such as auto components and pharmaceuticals.

“In our opinion, the frontline Indian companies have never been in better shape since liberalization began in 1991,” declares a September report on the India economy by Smith Barney.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.