PROUD TO BE AN INDIAN!!!. Review on India Shining Commercial 2004

The India Shining commercial started off as a political gimmick, to woo the voters to vote the current BJP led NDA. Let me clarify at the outset that this review is not canvassing for the NDA government. Thus I have timed this review when the elections are almost over. The NDA government came into power in 1999, where BJP led the pack. Atal Bihari Vajpayee became the Prime Minister with a BJP idealogy of Hindutva.

In 1999 I was strong opponent of BJP just for this reason of spreading Hindutva. India is proud of being the biggest secular democractic country, and BJP trying to spread Hindutva ideology did not gel well with the India's development plans to make India the Asian Super power. But hang on, do we realize that somewhere the whole concept of Hindutva is dropped in the last 5 years......if not dropped atleast not in the forefront. Let me analyse what this Government has done and the prospects for India:

There is a very clear possibility which is talked about by everyone especially the Foreign Institutional Investors (FII) that India can be a bigger growth story than China in the lon run. About a decade back we could even think of being remotely competitive to China. India?s services-led growth strategy, a departure from Asia?s traditional manufacturing-led model for growth, is benefiting from both domestic and global demand.

Globally competitive firms are emerging from the country?s historically protected private sector, and broad-based reform is fostering infrastructure development and greater openness. India?s macro policy consists of conservative monetary and FX policy to partially compensate for India?s loose fiscal policy. The fiscal deficit, at 10% of GDP, is the main challenge for macro policy management. This large deficit hampers growth by diverting much needed funds for infrastructure, health and education to interest payments.

Progress on privatizations and divestitures would ease the deficit significantly, but the process is slow. Infrastructure and education are two crucial structural conditions to keep India on a steady growth path, given India?s tilt towards service-sector activities. If India could match China in the quality of its infrastructure and education, growth rates over the next five years could jump from an average of 6.1% to 8.1%, hitting the government?s target of 8% growth. The country has witnessed well-known success in tertiary education on the back of public investment in higher education. But at the broader level, encompassing primary and secondary education.

Similarly, on most infrastructure indicators, India does not and historically has not measured up to other developing countries. Making progress in infrastructure is one of the hallmarks of the India Shining campaign. Reform in key sectors for services such as power and telecom bode well for sustained services growth momentum. India?s focus on services-led growth model, which is a sharp change from the manufacturing-led growth seen historically across much of Asia.

India?s IT sector has caught the world?s attention, but at 3% of GDP, it is just one part of a general services story, with the services sector making up 56% of GDP from 35% of GDP in the early 1960s. While services strength bodes well for productivity gains and lends expansionary growth potential to agriculture and particularly manufacturing, the limited amount of job creation stemming from services will remain a challenge for the labor market.

India can become .the next China.. Both China and India have witnessed strong growth over the past decade; both have large labor pools; and both countries have large diasporas to contribute to economic development. However, the economic orientation of the two countries represents two different approaches to development, one manufacturing-led and the other services-led. Moreover, India and China are at completely different places in their approaches to investment and openness.

India is about 10-15 years behind China in the reform process, suggesting that better growth is yet to come. With still much scope for reform, India?s healthy progress in liberalization; private sector-led development; and newly established political support for economic and structural reforms suggest that India could be setting up the necessary conditions to support the type of long-term growth path India projects. The largest emerging economies are Brazil, Russia, India and China. It is anticipated that there will be a relative shift in global economic power over the next half-century and suggest a dramatic change in the world economy, with China and India becoming the world?s first and third largest economies respectively by roughly 2040. The predictions include the following in store for India:

1. India becomes one of the world.s three largest economies in less than 30 years;

   
   




2. For achieving the above India has to grow at a sustained level of 5% over the next 30 years.

   
   




3. Income per capita in 2050 increases by 35 times over current levels

   
   

Globally competitive firms are emerging from the country?s historically protected private sector, and broad-based reform is fostering infrastructure development and greater openness. India is often characterized as a country of contradictions. This idea is exemplified by the popular phrase that India accounts for close to a third of the world?s software engineers and a quarter of the world?s undernourished. India to continue on this path, it must make further steps towards improving education and infrastructure.

Market interest in the world?s fourth largest economy (in PPP terms) has gathered striking momentum on the back of strong signals from India over the past year. Much of the interest stems from recent developments such as India?s strength in IT services, cyclical factors like the effects on demand of a fruitful 2003 monsoon, and the growth of India?s record forex reserves, $110 billion at last count and rising. The benchmark Sensex equity index rose by 72% over 2003, outpacing equity markets across most of Asia.

These recent developments are encouraging, but more important is the story of improving growth over a sustained period. India?s pace of reform, and the pace of growth, has been slower at times painfully slower than the likes of China, but it is occurring steadily nonetheless. Taking a smoothed average, India?s GDP growth has remained above5% from the early 1990s, indicating a marked improvement in performance over the past decade compared to the period between the mid-1960s and the mid-1980s.

And growth is taking place in an environment of low inflation and low interest rates, coupled with a balanced current account.

Continued in comments section.......