Indian Growth Story- Gloom or Bloom

What happened in Lok Sabha on July 22 must have heartened many, though the climax with Rs 1 crore on table might have made some morose too. Record high inflation is hurting the majority of middle class badly. Interest rate is causing further damage. I don’t understand why following the textbook rules, the banks must increase the interest rate to reduce inflation. Stock market has made many poorer. The India’s foreign exchange reserves remain still at around $300 billion. The International Monetary Fund (IMF) has lowered India’s growth forecast to 8 per cent in 2008-09 (9.3% in 2007-08). According to some, the figure may go lower. One of the global rating agencies, Fitch lowered India’s credit outlook. FM advises not to mourn 8% but to celebrate: “Very few countries and hardly any large nation except China are growing at eight per cent, and eight per cent growth will still be higher than the average rate of 5.8 per cent achieved during the six years of NDA rule.” I hate him comparing with NDA rule after four years in office.

However, many have positive outlook for India’s growth.

A group of top economists from Ernst & Young believe that India is on track to surpass China in growth. “We believe this is India’s moment,” declares Keystone Chief Economist William T Wilson.

Interestingly, the companies are ready to face the situation and to change strategies for keeping the growth going. For instance, big IT companies such as TCS and Infosys were in the auto component design space for a few years now. Now even the relatively smaller ones such as KPIT Cummins Infosystems, Onward Technologies, Neilsoft and CADES among others are getting into the automotive design business for better margins and higher growth in these times of economic slowdown.

Private sectors are moving fast with many achievements. New airports at Hyderabad and Banglore have come in operations. The country’s biggest private sector port has started working in Andhra Pradesh.

A yet to be released white paper, ‘India’s Role in the Globalization of the IT Industry’ by Evalueserve, a KPO, forecasts, “India will create the second largest IT services labour pool after the US within the next seven to eight years. By 2015-2016, the number of professionals working in the IT industry will grow ten-fold (from 2001-2002) and the total revenue will grow 22 times.”

Indian outsourcers are competing well with MNCs and going global. The increasing complexity of contracts with big U.S. customers; growing wage pressure at home; the rising value of the rupee; and a fierce counterassault by IBM, Accenture, and Electronic Data Systems (EDS) (recently purchased by Hewlett-Packard Company) have obliged the Indian companies- Satyam, Wipro, Infosys, Tata Consulting Services, Cognizant Technology Solutions, and HCL Technologies- known by the acronym SWITCH, to go global and create new multinationals that are much less India-focused. The battle between the fast-growing Indian outsourcers and the big U.S. firms shapes up as an intriguing test of the ability of companies from emerging countries to go toe-to-toe with the best that the West has to offer. And the world is to wait and watch who wins.

With a total of 282 outsourcing contracts valued at $49 billion in total contract value (TCV) and $10 billion in annualised contract value (ACV), the IT outsourcing industry notched up record business during the first two quarters of the current calendar year, according to TPI, the sourcing data and advisory firm. IT companies such as Wipro (25%) and Satyam (45%) are still making pretty high profits in Q1. Even manufacturing companies such as Hyundai projects to double export figures this year.

Private business houses and its associations are still ambitious and wish to keep the India’s growth story exciting. According to Confederation of Indian Industry (CII), “India can record a GDP growth rate of about 8.6 per cent during 2008-09, given the increasing capital expenditure by the private sector and the healthy incremental capital output ratio of around 4.”

Mumbai-based Centre for Monitoring Indian Economy (CMIE) expects the Indian economy, driven by large capacity additions, to expand by 9.5 per cent during the current year. According to CMIE estimates, fresh investments of Rs 4,44,708 crore over 400 projects were announced in the first quarter (April-June) of this financial year alone. This comes on the back of equally robust numbers in 2007-08, when more than 3,000 new projects, entailing investments of over Rs 17 lakh crore, were announced. There were 14,450 projects with committed investments of more than Rs 61 lakh crore at the end of 2007-08 with maximum number of projects covering key sectors like power, services, construction, mining, machinery, chemicals, metals and metal products.

How can with impending slowdown the capex boom in India would have continued? How could more and more fresh investments get announced every quarter?

Let the politicians not spoil the boom party even in the gloom of terror created by the sick minds.

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