India Projected to Be the Fastest Growing Economy in 2010 11 comments
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By Neena Mishra
The World Bank has projected (in its Global Development Finance Report) that the Indian economy will grow at 8% in 2010, which would make it the fastest-growing economy in the world for the first time, surpassing China, which is projected to grow at 7.7% rate. Please read Dirk Van Dijk's post for more information about the World Bank's forecast on the global economy.
For the current year, the Indian economy is projected to grow at 5.1%, revised up from an earlier projection of 4%. It may be added that India has consistently outperformed World Bank's forecasts in the past.
The slow pace of reforms in critical areas had affected India's growth in the past years. However, the re-elected Government has promised to bring about desired reforms in infrastructure, social sector and financial sector. Among other reforms in the pipeline are opening up of retail, insurance and banking sectors to more foreign investment and reducing Government ownership in refineries, banks and fertilizer companies.
Prospects for strong economic growth have resulted in the recent surge in prices of Indian ETFs such as PowerShares India (PIN). While ETFs are good vehicles for exposure to the country, investors may also look at specific sectors, which are poised for higher growth than others.
The Indian mobile industry has now moved out of its hyper-growth mode, but is expected to continue to grow at double-digit rates in coming years as operators focus on rural parts of the country. Mobile market penetration has been projected to increase from about 40% currently to about 65% in 2013. Companies like Vodafone (VOD) are expected to benefit.
India's retail sector (the fifth largest in the world) is expected to grow at a 10% rate. Consumer demand has remained strong and is growing as the young population is booming. The next phase of retail expansion is expected to come from the rural areas.
The financial sector is currently on the rebound with improvement in the macroeconomic environment. However, deterioration in the asset quality still remains an issue, particularly for banks like ICICI Bank (IBN), which have had massive expansion in the last few years.
The Indian IT sector has been hurt by the global slowdown as most of its revenues have come from clients in US and UK. Outsourcing competitiveness is also declining as other low cost centers are emerging in Eastern Europe and Asia. Top IT companies like Infosys (INFY) and Wipro (WIT), which saw 20-25% revenue growth in the past, now project near flat growth. These companies will benefit once the global economy recovers.
There are some areas for concern, though. Due to its deteriorating fiscal position, the government is not in a position to offer a large stimulus package in the budget slated for release in July.
Further, although the government now has a healthy majority in parliament, strong political will is required (which has been lacking so far) to cut popular subsidies and modernize labor laws.
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This article has 11 comments:
I will take an un-controlled, chaotic, anarchic, creative, innovative economic model, over state control anyday...which is why I believe that inspite of the recent hiccups the US economy is going to be more robust in the long term than the our friend in Europe.
For India's sake though I hope the growth percolates down to the 2/3 of the population who still on the edge of abject poverty. What we need is torrent, and not a trickle "down".
VOD has worldwide operations--how much of its revenue comes from India? Why would a British company benefit more than a local telecom like TCL or MTE?
In the other sectors you only told us what was problematical. Where are the winners?
(disclosure: long RDY)
India's growth, if at all it does materialize, will come from Power, Roads, Automobiles and Cement. And even processed foods, FMCG and consumer durables.
Due to very poor agricultural infrastructure, India remains heavily depending on a normal harvests to support economic growth. This is a major risk factor that has been overlooked recently because the weather has been cooperating in recent years. But this could just mean that bad monsoon may be overdue to happen soon.
As for the key Indian players, I'd take some of the claims on asset values with a grain of salt for now and demand consistent dividends as an indication of fiscal discipline (but even then, I'd be cautious - the family trading companies are as convoluted as their Chinese analogues).
In addition to government interference of the free market; high government debt, projected high inflation and nationalization of healthcare will keep the economy bogged down. Also, if cap & trade pass you can expect whatever manufacturing that is left will also shift to China & India.
On Jun 24 08:19 AM Bandwagon2009 wrote:
> And in my opinion it would grow even faster, and be more sustainable,
> if they got rid of the last vistages of the "license raj".
>
> I will take an un-controlled, chaotic, anarchic, creative, innovative
> economic model, over state control anyday...which is why I believe
> that inspite of the recent hiccups the US economy is going to be
> more robust in the long term than the our friend in Europe.
>
> For India's sake though I hope the growth percolates down to the
> 2/3 of the population who still on the edge of abject poverty. What
> we need is torrent, and not a trickle "down".
I would suggest investing through
-banks such as HDFC,ICICI
-Telcom companies such as Bharti Airtel Ltd
-SLT, RDY,etc.
Infact if you wan to invest using ETF then the best bet is IIF and not PIN.
Sumeet
Western and particularly US industrial companies are treated with mistrust and it is not hard to understand why.
On Jun 24 03:17 PM HaavBline wrote:
> India can finally reach its high growth phase if it truly bigins
> to open up key domestic sectors to foreign investment, especially
> to quickly improve overall infrastructure.
>
> Due to very poor agricultural infrastructure, India remains heavily
> depending on a normal harvests to support economic growth. This
> is a major risk factor that has been overlooked recently because
> the weather has been cooperating in recent years. But this could
> just mean that bad monsoon may be overdue to happen soon.
Massive project delays is resulting in increasing costs and delayed implementation which in turns saps the potential benefit that we may otherwise get out of it. We need increased accountability and strict project cost tabs with deadlines.
According to estimates, India will need greater than $500bn in infrastructure spend in the next 5 years,that kind of money can single handedly generate massive employement and support a comsumption driven economy on its path to 10% growth.