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India eyes economic moment in the sun

India eyes economic moment in the sun
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First Published: Mon, Feb 05 2007. 04 16 PM IST
Updated: Mon, Feb 05 2007. 04 16 PM IST
New Delhi: India’s economic moment in the sun is dawning as the nation shifts to a new growth trajectory and flexes its takeover muscles abroad, say analysts, amid a flurry of upbeat financial news.
In the past week, the government revised India’s growth for the past fiscal year to nine percent from an earlier 8.4 percent and shares hit their seventh record high this year.
The Tata Group also pulled off the country’s biggest foreign takeover with its $13.7-billion buy of Europe’s largest steelmaker Corus.
And international ratings agency Standard and Poor’s boosted the nation’s sovereign credit rating to investment grade from junk, citing a strong economic outlook.
“The economy has taken on its own momentum,” said D.H. Pai Panandikar, head of New Delhi-based economic think-tank RPG Foundation.
“There’s definitely a change, and it’s not a cyclical change -- a structural story is building,” agreed D.K. Joshi, principle economist at Indian credit rating agency Crisil. Structural change is a term economists use to describe long-term adjustments in growth patterns.
The views are shared by investment bank Goldman Sachs which forecasts the economy will grow by an average annual eight percent through 2020 and possibly more, fuelled by productivity gains in industries turning out cars to computers for an increasingly affluent middle class.
It calls the higher growth a “structural increase rather than simply a cyclical upturn.”
Asia’s fourth-largest economy has grown by an average of over eight percent annually in the past three years.
The forecast rate is far above the average 5.7 percent growth that Goldman Sachs predicted just four years ago when it released its path-breaking BRICS report on prospects for Brazil, Russia, India and China that whipped up investor interest in emerging economies.
The bank projects India’s GDP will surpass that of the United States before 2050 to make it the second-largest economy.
“India could reach a growth rate of 10 percent by 2010 and sustain it thereafter,” given the right conditions, including higher foreign investment and sustained productivity growth, Goldman Sachs added.
Meanwhile, the value of Indian overseas mergers and acquisitions hit a record $7.2 billion in 2006, according to market researcher Dealogic.
That figure has been surpassed this year with the Corus purchase and media reports say other big-ticket buys are in the offing with companies flush with cash.
Driving up the share market has been the performance by India’s listed companies. They have grown their sales by an average annual 18 percent over the past four years and their profits by around 27 percent.
On Friday, the benchmark Bombay Sensitive Index or Sensex closed at a new high of 14,403.77, up seven percent this year, after jumping by a record 46.7 percent in 2006 led by foreign fund investments into Indian equities totalling 7.99 billion dollars.
Economists says there are plenty of risks that could dampen the enthusiasm, especially inflation hovering near a two-year high of 6.11 percent, fuelled by hefty 30 percent credit growth and many companies operating at full capacity.
The government has already said it is worried about the economy “overheating” and the central bank has been steadily tightening monetary policy.
On the social front, while 300 million of India’s 1.1 billion population is considered middle class, another 300 million still live on less than a dollar a day and 45 percent of children under five are malnourished.
The government is keenly aware of the threat of a political backlash if prosperity is not shared, and stresses the need for “inclusive growth.”
But analysts say India has now left behind the days when its economy was scorned for its “Hindu rate of growth” of three percent, thanks to reforms of the 1990s that opened the country up to the world.
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First Published: Mon, Feb 05 2007. 04 16 PM IST
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