Get set for GDP @ 9%

  • SumoMe

Greetings, soldiers of a marching economic power expected to shine out the best in business by year 2050. You are the leaders of tomorrow and the mentors of today. India, which shone up to be the fastest growing economy along with China in this decade, is all set to cross new barriers and leap forward to greener pastures of growth and prosperity.

India has been showing an average growth rate of more than 8.5 per cent since the last five years. It has been one of the most consistent and holistic growth stories of the modern globalised world. This journey of economic reforms, which began in 1991 when Mr.Manmohan Singh was the governor of Reserve Bank of India (RBI), has never seen such growth figures before. Last five years saw the practical realization of the reforms that were thought of in the ‘90s.

We have witnessed widespread reforms in the capital markets. This has paved the way for huge Foreign Direct Investment (FDI) through Foreign Institutional Investors (FIIs), Participatory Notes (P-Notes), High Net-worth Individuals (HNI) and various hedge funds. This has partially eradicated the need for funds in infrastructure and development projects. The flow of FDI is seen the highest in FY 2007-08 when FDI came in figures that were more the total amount of FDI in the preceding five years. This has shown the immense growth potential and fundamental of Indian inc. and this also means that the growth trajectory of India is here to stay. Furthermore, we also see that the stock market mayhem is a temporary phenomenon, just as the recent political uncertainty. These tiny things are not going to make the lions of India cringe now.

In case you are not convinced by the thoughts of the much experienced FIIs and HNIs, then look at the advance tax returns of companies for the FY 2008-09. This has seen a phenomenal rise; or rather the highest ever rise over last year. The government’s direct and indirect tax revenues have seen a rise of straight 42 per cent than the previous year. Various credit and investment organizations have improved India’s rating to AAA of BBB+, indicating low risk and huge potential.

In case you are a die hard pessimist and are still not convinced, let me tell you the situation of monsoon in this financial year. By and large, India is still an agrarian country; the effect of monsoon is immense and affects both the most weak and strong segment of society. Amidst the clouds of global food inflation, India, in spite of the bad crop last year, managed to keep itself insulated from food crunch. Today, when food inflation is threatening to be more dangerous than the crude oil, we are at a peace of mind as the rainfall this time has been above average and we can expect a bumper crop in this financial year. This will not only help in keeping food prices under control in India, but we can also sell of our food at good price in international market.

Some people will argue that in the time of double digit inflation, we cannot achieve a 9 per cent growth rate. I would like to focus their attention on the situation of 1971. This was a year when the crude oil prices have actually doubled in a few months time (the situation is still not that bad) and still India doubled its GDP growth rate during that period. A normal economics phenomenon says, that when a country progresses, more and versatile products are manufactured for consumption. As the income level of a progressive country increases, the demand for consumption also increases. This leads to a rise in inflation, as in most cases the supply elasticity finds itself non-competent to demand elasticity. So, we have an inflationary period of 6 to 12 months. An inflation of 6 to 8 per cent in a developing country is considered not only logical but favorable.

Now, my dear pessimist friends will say that we are having an inflation of double digits and it is feared to rise. In this matter, I would again attract your attention to the factors that contribute to the inflation in our country, the main factor being crude oil. In a power hungry country like India, we import about 70 per cent of oil from abroad. This not only cause us a lot of FOREX but also makes us trade deficit. However, the stronger rupee has saved us from lots of heat of oil. Secondly, as US is expected to stabilize both in political sense and economic sense by the end of this year, the oil prices are expected to turn down. Many nations including India are ramping up their oil production and simultaneously are moving towards greener sources of energy. This will surely not only bring down the oil prices below $110 mark but will also reduce the inflation to at least below 8 per cent.

Therefore, as the feelings of the most pessimist can melt down after these heart-warming thoughts of growth, Mr. Montek Singh (the chief of Planning Commission of India) was not wrong when he recently said that India would surely attain 9 per cent growth in GDP in the FY 2008-09. So fasten your seat belts now, because India is all set to zoom into a bright future and the journey is not going to stop by these mere hiccups. Long live India!

Saurabh Sharma

[Image Source:http://www.flickr.com/photos/niallkennedy/99432253/]

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