The India Story : Where is the economy heading ?

So where exactly is India heading? Our GDP is at an all-time low reaching a grow
th rate of just 6.2% in this fiscal year down from the golden days of over 9% gr
owth just a year back, the political system is facing lots of hard times due to
the rise in regional times and our fascination with Gold imports and energy need
s continue to affect our current account deficits. Experts and pundits are quest
ioning the viability of the India story, but is there really an alternative?
India, today is the world s second most populous state next only to China and give
n the high growth rate it will soon overtake China. It is more significant to no
te that the total middle income population is higher than that of the total popu
lation of United States
the world s biggest market! So we are essentially looking
at market for the future - can we ignore it?
While analysing India, it inevitably brings in comparison with China especially
after Jim O Neil coined BRIC, clubbing India with China. There can be nothing fu
rther from reality though. India and China follow two distinctly different growt
h models, and such comparisons defy conventional wisdom. While sustainability of
China s economic model has been the question, in case of India the question is wh
ether the growth engine has reached a halt.
A major reason though for the lack of faith in India s story is our current accoun
t deficit, largely due to imports of Gold and Energy. India imported about 38 bi
llion USD of Gold in the current fiscal year till December as compared with 56 b
illion USD in the fiscal year 2011-12. In order to curb the import, the impositi
on of a tax of 6% per 10 grams of Gold also does not seem to yield much result i
n curbing demand while increasing illegal import of Gold in the country. However
, if we look at quality of Gold as an asset, it reigns supreme over many alterna
te asset classes and has the prospect of one day being used as an asset for exte
rnal borrowings by the state. At the same point of time, India can become self sufficient in energy resources if it starts exploiting its energy reserves. The
natural gas reserves (RIL might be reducing output to revise contract prices) in
KG Basin, the Shale gas reserves in Arunachal (by conservative estimates it is
sufficient to meet the country s energy needs for about 50 years) and the Thorium
reserves in Kerala all stand testimony to the fact.
While much headway has been made with respect to manufacturing in the country, s
ocial initiatives like NREGA will ensure that wage rates will be above a certain
level, thus ensuring that India will not be able to compete with low cost manuf
acturing in countries like Bangladesh and China in the long run. Hence, the focu
s therefore should be to move up the value chain and look at high end exports in
manufacturing and service sector. The continuous weakening of the Indian rupee
should help in exports while also attracting foreign investment in the financial
markets close to 4 billion USD has been invested in Indian equity market by for
eign investors in January this year.
The decision of the central government to allow FDI in retail indicates that the
re is an increasing willingness to get the Indian growth engine back on the trac
k. The recent decision to deregulate diesel prices further points that India is
well on its way to adopting market economics in the long run as also the electio
ns in crucial states like Gujarat and Bihar being contested on issue of developm
ent and not caste-based politics show the growing change in mind-set of the vote
rs.
Whether S&P downgrades India or not, can you find another better place to invest
in given financial situation in the world? There are no signs of recession endi
ng either in US or EU, with Britain planning a referendum in 2015 to decide whet
her to quit EU. Deutsche Bank CEO Mr. Anshu Jain recently commented that he woul

d rather prefer India s problems than those of EU. Perhaps, there is still hope. T
he bigger question is: Can we put our money on the Indian tortoise to win the ra
ce? Maybe, yes.
[The article has been written by Abhirup Bhattacharya. If you liked reading it,
you can reach him at abhirup.merch@gmail.com or on twitter @abhirupbh ]
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