2016 begins on a good note. World Bank and IMF, both say, India will soon overtake China and become the world’s fastest-growing major economy. This comes at a time when the rest of the world is slowing down. US, Europe, Asian Tigers: everyone is feeling the pinch.
In fact as recent as two years back, international investors were tut-tuting India’s Hindu rate of growth. The Economist magazine, said, “the miracle feels like a mirage”, pointing out the country’s inability to sustain the 9% plus growth rates, clocked between 2005 and 2008.
So are we going to be able to pull it off? I mean overtaking the Chinese dragon... isn’t that what every Indian has been rooting for? The stars, for one, are clearly aligning well. India benefited immensely from the fall in global oil and commodity prices most of last year.
This meant that the huge bill we foot every year to import oil dropped, making it easier for the government to balance its fiscal books. Interest rates have begun to soften. Inflation that was reigning at 9% has been stabilised. Wage price inflation especially in rural areas - much of it triggered by assorted UPA cash-transfer schemes - has been checked. Politically-sensitive wholesale food prices, are somewhat under control.
While exports have been hit due to the prevailing global slump and strengthening rupee, the robust domestic market, powered by India’s entrepreneurial culture, remains resilient. All this should encourage industry and companies to borrow more money, expand their business, create more jobs and generally spark what economists call the ‘virtuous cycle’ of consumption.
But that is only one side of the economic equation. Reforms are urgently needed in land, labour, mining and manufacturing. Bureaucracy need to be trimmed, making it easier for foreign companies to bring in money (FDI) and do business. Retrograde tax laws need to be amended. Subsidies on food and fuel need to be reduced or done away with completely.
The Made-in-India campaign is a great initiative to kick-start brick and mortar manufacturing. So is sending high-powered representation to Davos. But without foreign capital, it will be difficult to address the country’s yawning deficit in infrastructure.
India at 6.5% may be ahead in the IMF outlook, but when it comes to infrastructure, especially linkages between factory and marketplace, India is years behind China. Without the roads, railways, ports and trade corridors, the Indian Tiger is unlikely to roar.
Probably that’s why the Modi government is readying a generous dose of Retail Therapy. News reports talk of an investment stimulus of Rs 2,00,000 – 3,00,000 crore. Much of this will be financed by the sale of state-owned resources like minerals and spectrum. This infusion has the potential of adding 1.5-2 % to our growth rate over the next few years.
Youthful workers, high savings rate, vibrant domestic market India has always had a lot going for it. Today it has the energy and optimism.
Clearly the best time to break through that 10% growth ceiling.
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