Economic Growth in India

 

 

The Upsides

India’s Gross Domestic Product (GDP) growth for last year is  about 8%, while inflation is likely to be less than 5 percent. Ensuring economic stability and keeping inflation in check were the highest priorities of economic policy. “While there has been a significant increase in growth, the policies have emphasized stability”.
India is one of the few developing economies where inflation is under control. Not many emerging market economies are without double-digit inflation.” Inflation had decreased from 9.6 percent in the 1990s to around 4.8 percent now.
Giving credit to all his predecessors in the RBI and the policy makers in the Government, the Governor said that those in the Government never allowed inflation to go beyond 10 percent. For its part, the RBI “hates inflation.” Therefore, Indians have faith in the rupee.
Driven by the growth of the manufacturing sector, the industrial growth rate over 10%, compared to 4.5 percent a year ago. That, in turn helps a robust economic growth. According to the Index of Industrial Production (IIP) released recently by the Indian government, the manufacturing sector saw an impressive growth. Meanwhile, the Indian manufacturing sector is estimated to command a market capitalization of over $500 billion by 2014-15, as against $272 billion as of Sept. 30, 2007, said a study on the sector by the CII.
The core manufacturing sector comprises engineering and construction, industrial manufacturing, materials and commodities, chemicals and plastics, and automotive. Mergers and acquisitions are also transforming this sector. M&As in the manufacturing sector account for almost half of the overall deal value.

The downside

The consistent higher economic growth exprience over the past few years made many believe that the Indian economy has entered a high growth path.
Let’s take the agricultural sector. A sector that supports nearly 70 per cent of the country’s population has seen a steady decline. A slide that even reforms failed to stem. India’s agricultural productivity, in most cases, is one of the lowest in the world. Per capita availability of food grain is falling as population is growing faster than food grain production. Unfortunately, in case of agricultural produce, unlike oil, producers do not always benefit from rising price because of wrong policies and bad infrastructure. Not surprisingly, farmer-suicides are still commonplace in India. And, to top it all, investment in rural infrastructure is falling.
However, with the American economy slipping into recession and inflation becoming a major concern world-wide, India is on the verge of a slowdown. We are now seeing the decoupling theory giving way to the ‘recoupling’ theory.
India does not seem to have reached a stage where continued high growth will not trigger inflationary pressure, unlike China which sustained a scorching pace for a much longer period of time on the back of clearly improving productivity. India does not seem to have gained much by way of improving productivity that would have ensured sustained high growth. A mere five-year-long high GDP growth is seemingly choking the economy via inflation.
The sustainability of growth would also depend on high savings rate. However, a closer look at the composition of India’s savings rate does seem to suggest that the recent spurt in the rate has more to do with cyclical factor than real structural improvement.
The Indian Real Estate Bubble
With an estimated growth at an average of between 25-30% in next five years India is one of the fastest real estate markets in the world. As against this growth trajectory, the growth rates in some of the most developed markets in the world has fallen to single digit figures. Unlike in the developed countries India is witnessing its first real boom in the real estate sector since independence. With the fast pace modern era which is affecting this part of the world which is supporting a growing and sustainable economy on a long-term basis India is the place to take note of. With rise in literacy rate and new age economy businesses creating new job opportunities, the middle class brigade of India is only mushrooming which is now well exposed to global trends and, therefore, has similar aspirations in terms of lifestyle.
With over 400 million people set to enjoy this new India they are well poised to support the mammoth opportunities in the real estate sector. India has a well-defined regulatory and financing regime in place. Last but not the least, real estate property in India in both residential as well as commercial segments, are fast turning into gold mines with phenomenal price escalation ( more than 100% in several places) in last couple of years.
 
Compiled by: Krishan Arya