Why you should not lose sleep over India's economic condition

Never mind Europe, worry about India, wrote Tyler Cowen in New York Times early May this year, setting off an alarmist chorus leading many to question the sanctity of the India story. Meanwhile, the all round negativity has not only persisted but also got worse.

At the Zee Business Market Analysts Awards 2012 in Mumbai on June 17, Madusudhan Kela, chief investment strategist, Reliance Capital, recalled his driver making discreet enquiries about the Greece crisis and whether India would survive the Euro collapse. The billion-dollar question that begs an answer is whether the ghosts, that many amongst us see, are for real? 

It is true that there are not many takers for Dr Manmohan Singh’s call to revive the animal spirits in the country’s economy. The key argument against him being, that if he failed to deliver as PM how would he deliver both as PM and FM. There is merit in this argument, except that it relies too much on Singh being the sole action hero in the India story.

It has now emerged beyond doubt that the 1991 economic revival happened because of the rare political will demonstrated by the then Prime Minister PV Narasimaha Rao in giving Dr Singh the mandate to execute his vision, which he did impeccably well.

Singh has perhaps got more than his due while Rao has been denied the same. But the problem with us all is that we all get so much excited about an encore. Singh has done better than what he himself would have aimed to achieve when he began his career. Truly he has moved on in life so has India. We are no longer in a 1991-like situation (sorry to disappoint Kela’s driver) and the riot act is totally uncalled for.

The India story no longer rests on a few individuals, no matter how important or powerful the positions they occupy. India, today, is symbolised by the collective zeal and energy of a billion-plus people keen to write their own destiny. The make or break India perspective is intrinsically linked to the yet to be satiated aspiration each Indians has to better his quality of life.

The India story does not merely reflect in select macroeconomic indices; it thrives in the infinite energy to grow irrespective of limitations. Yes, indeed, policy makers have a role to play, which they ought to determinedly play in a vocal manner, to wash out the policy paralysis stigma. It is not about the moment but about today and tomorrow. A hope for a better tomorrow would unleash a power that would indeed drive us all forward.

It is not without reason that the well-known Bentley College economist Scott B Summer predicted that India would be the biggest economy next century. But the challenge would be to grow at 6 to 8% on a sustained basis. That is well within India’s established track record and immediate independent predictions, too, endorse this growth level. I

India’s growth estimate by the International Monetary Fund is 6.9% for 2012. For a country of India’s size, a sustained 6 to 8% growth rate is surely bound to push many more layers of the poor population upwards.

According to Nielsen’s latest global consumer confidence findings (for the first quarter in 2012) optimism over job prospects and state of personal finances are up from last quarter as Indian consumers continue to be the most confident across the globe for the ninth consecutive quarter, rising one index point to 123 in Q1 2012 over the previous quarter.

Today, India comprises about 5% of global middle class consumption while Japan, the United States, and the European Union cover fully 60%. By 2025, those numbers are expected to equalise; by 2050, they will be flipped. Middle-class demand is expected to grow from $21 trillion in 2009 to $56 trillion by 2030, with 80% of that growth coming from Asia. By 2050, India will comprise about 40% of global middle class consumption, according to the WEF World manufacturing report 2011.

A Kotak Wealth-Crisil India Wealth Report says that in the last few years, India’s growth, even at its lowest, far exceeded that of both its developed and emerging market peers. It found that total net worth of Indian ultra high net worth households (ultra HNHs) will reach Rs318 trillion in 2016-17, a nearly five-fold increase from around 65 trillion in 2011-12. The report says there are 81,000 ultra HNHs in India as of 2011-12. (Households with a minimum net worth of Rs250 million), it is poised to more than triple to over 286,000 households by 2016-17. 

An independent study of states fiscal health shows that, by and large, states have exhibited encouraging fiscal performance by containing the overall gross fiscal deficit as a % of GDP below an average of 3% during 2009-12. Delhi holds strong fiscal health during 2009-12 posting an average gross fiscal deficit as a % of GDP of 1.2%, the lowest among all states. Odisha and Chhattisgarh also have exhibited very healthy fiscal performance in terms of keeping their gross fiscal deficits lower than the average of 2% while Maharashtra and Madhya Pradesh have gross fiscal deficit below an average of 3%.

The micro picture too looks encouraging. The Indian mutual fund industry recorded growth in quarterly average assets under management (AUM) for the first time in the past four quarters. AUM rose by 4% (or Rs274 billion) to Rs6.92 trillion in the April-June 2012 quarter from Rs6.65 trillion in the previous quarter, as per the latest numbers announced by the Association of Mutual Funds in India (AMFI).

A Cyber Media study shows that India mobile phone sales crossed 50 million in Jan-Mar 2012; up 9.1% (YOY). Smartphones made up 5.3% of units sold and almost a quarter of total handset revenues. Giants IKEA and Coke have bold investment decisions in India to perk up the investment scene.

That is why perhaps Rakesh Jhunjhunwala, known by many as warren Buffet of India, said, "Don’t look at the next three to six months. The long-term view is good." He surely knows where to put his money best. 

The writer is the Editor-Zee Research Group (ZRG)