Has the Indian elephant finally mutated into a tiger? Its potential was never in doubt, but its stately pace has been a source of annoyance for some foreign investors and economists. Over the last few months, however, there has been a recognition of the improvements in India's macroeconomic situation.
The world is beginning to take notice of India as not just an IT power but also a sourcing hub for sectors such as auto components, textiles and pharmaceuticals. In the US$2.3 billion ITES (information technology enabled services) sector alone, India could grow to US$23 billion by 2008, according to industry estimates.
The economy is enjoying its best period ever, with a growth rate of about 8 percent this year, making it one of the best performing economies in the world. Agricultural production is up as a result of good monsoons last year, factories are running at full capacity, corporates are earning good returns, stock markets have been on an upswing, and, most important of all, there's a new optimism in the government and its policies.
"The average rate of growth during 1992 to 1997 was around 7 percent, and after 1997 was under 5 percent. But this year it's been between 7.5 percent and 8 percent. Overall, all sectors are looking up with agricultural production going up, stable prices, falling interest rates, political stability, and the most recent relationship with Pakistan," says Sanjaya Baru, chief editor of Financial Express, a prominent financial daily.
So what factors have led to this feel-good factor over the past year? The Federation of Indian Chambers of Commerce and Industry (FICCI) feels last year was "an exceptionally good year. Among the outstanding achievements, the two that stand out are the projected record increase in food grain production by around 38 million tonnes in 2003-04, and the increase in foreign exchange reserves to above US$100 billion on 19 Dec. 2003."
This is a long, long way from those dismal days of 1990 to 1991 when reserves had fallen below US$1 billion, and the country had to mortgage its gold to borrow.
Moody's last week upgraded India's long-term foreign currency rating due to rising foreign investment and economic growth. India's GDP is set to move above 7 percent in 2003-2004 for the first time in seven years. GDP growth touched 8.4 percent in the second quarter of 2003-2004, the highest quarterly GDP growth ever recorded.
A close look at the figures reveals that the services sector is accelerating at a fast pace and accounted for close to two-thirds of the pick-up in the GDP growth rate in the first half of the year, while industry contributed one-quarter (24.1 percent) and agriculture one-tenth (11.7 percent).
"Domestic growth is being driven by record consumerism in housing and automobiles, which makes it a very attractive market for investors," says one fund manager. According to a recent Goldman Sachs Report, the Indian economy is expected to be the third-largest in the world by 2032, after the US and China but overtaking that of France, Germany and Japan. The stock markets have been buoyant since May 2003, with the indices doubling over the last seven months.
Adam Matthews, Asia-region specialist with JP Morgan Fleming, which has huge fund exposures in India, says: "India is being rated even higher than China at the moment, and is a hot market right now."
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