Venkat Raman –
Almost five decades ago, when I was appearing for my final postgraduate examination in economics, a visiting professor from the Delhi School of Economics asked me to describe the Indian economy as I saw it.
Those were days of socialism at its hilt, private initiatives were depressed and the government was seen as the end-all.
“Modern India is like a car trying to go forward in the reverse gear,” I said.
Difficult years
Uncharitable it may sound in today’s context but I believe my analogy somewhat described the plight of the average investor and entrepreneur.
Those were the years of falling agricultural production, industrial strife and a muted opposition, if at all it existed. The middle class was growing and industries, largely state-owned were established to fuel the economy.
‘The government must be the engine,’ was the slogan.
And of course, the country was less than 20 years since independence and had not come off age as a republic. The pains of growth were visible and understandable.
But 68 years after gaining independence, India has changed, mostly for the better.
Everything has grown multifold – manufacturing, agricultural and industrial production, international trade, inflation and of course population.
If Europe ushered in the industrial revolution in the 18th century, India led in information revolution in the 20th century, perching at the seams of technology and is moving towards becoming a world economic power.
Amazing progress
If the 21st century belongs to Asia, India would and should be its leader and political, economic and social powerhouse.
I was not in the country to witness its phenomenal growth but as an external observer, I have been amazed by the volume and value of wealth created and the respect and admiration it gained among the international community.
This was nothing short of a miracle.
But I guess India and Indians always had an inherent capacity to grow and achieve, except that the complacency generated by an insular economy failed to inspire global ambitions and precluded the world from perceiving the world’s largest democracy in its true light. The resultant nonchalance within and without was inevitable.
Economic Indicators
Economic indicators that appear alongside this report should provide you a glimpse of the state of the Indian economy and its aggressive growth path.
The Indian economy is expected to grow by 7.6% in 2015 and 7.8% in 2016, according to mid-year update of United Nations World Economic Situation and Prospects.
The net foreign direct investment (FDI) inflows have touched a record high of US$ 34.9 billion in FY 2015, according to a Nomura Report. The Report also indicated that the net FDI inflows reached to 1.7% of GDP in FY 15 as against 1.1% in FY 14.
India’s foreign exchange reserve stood at a record high of US$ 355.45 billion in the week up to June 19 2015, an increase of US$ 1.17 billion compared to previous week.
Mutual Funds have invested over US$ 3.2 billion in equities and Equity Linked Savings Scheme (ELSS) during the months of April and May in 2015, according to Association of Mutual Funds in India (AMFI). This increased the asset base of equity funds to US$ 57 billion in May 2015 from US$ 53.9 billion compared to end of previous year, indicating a growth rate of 5.8%.
India’s Index of Industrial Production (IIP) grew by 4.1% in April compared to 2.5% in March, 2015. The growth was largely due to the boost in manufacturing growth, which was 5.1% in April compared to 2.8% in the previous month.
Key Infrastructure
The eight key infrastructure sectors grew by 4.4% year-on-year in May 2015 as against 3.8% in May, 2014 with refinery products exhibiting the maximum growth of 7.9 per cent.
India remained at the top of Nielsen’s global consumer confidence index for the fourth quarter in a row. The country’s confidence score rose 1 point from the previous quarter and 9 points from a year ago to 130 in the three months ended March 2015.
Indian automobile industry exported a record 3.5 million vehicles during FY15, registering an increase of 15% compared to the same period a year ago. During the same period, India’s current account deficit reduced sharply to US$ 1.3 billion (0.2% of GDP) in the fourth quarter of FY2015 compared to US$ 8.3 billion (1.6% of GDP) in the previous quarter, a reduction in the current account deficit by 84.3% quarter-on-quarter basis.
Inflation run
India’s Wholesale Price Index (WPI) inflation rate remained negative at 2.36% for the seventh consecutive month in May 2015 as against negative 2.65% in the previous month, led by low crude oil prices.
Mergers and Acquisitions (M&A) increased in 2014 with deals worth US$ 38.1 billion being concluded, compared to US$ 28.2 billion in 2013 and US$ 35.4 billion in 2012. The total transaction value for the month of May 2015 was US$ 3.3 billion involving a total of 115 transactions. In the M&A space, pharma continues to be the dominant sector amounting to 23% of the total transaction value.
India has seen 350 Private Equity (PE) transactions worth US$ 12.7 billion in less than past six months, much higher than the previous high of US$ 10.9 billion in 2008 with 195 transactions. This spurt in PE activity could be credited to large Venture Capitalists (VCs) and their funding to E-commerce platforms.
Economic Reforms
India must speed up its economic reforms if it has to comply with the stringent rules of the World Trade Organisation and record better export figures. Ample opportunities exist for fostering a better international trade status.
More important, India can achieve its ambition of playing a lead role in the political arena with improved economic strength. With its notion of non-aggression (going nuclear is not antithetical to pacifism) and more importantly as a democracy, India would be more acceptable to take the role of Asian leader than China.
India must also further relieve the private sector of ballooning compliance costs, eliminate red tape, reduce bureaucracy and provide incentives for investment.
