Emerging Economy January 2010 Indicus
by Indicus Analytics Private Limited on Jan 06, 2010
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• Future growth on much firmer footing – across manufacturing, services and agriculture sectors
• But corporate hiring and investment to stay flat for another quarter
• Tax collections - Boost in advance tax but indirect tax collections much lower than expected
• Good rabi output expected, of course, if weather holds up
• Inflation concerns will reflect in small increase in CRR and rate hikes by RBI this month
With the worst of the economic crisis behind us, we look ahead to forecast trends for the decade ahead – growth is set to be much faster than the last ten years. The driving force of the decade? Transport, storage and communications - a large road network is going to be operational, ports are rapidly improving, air transport infrastructure is being overhauled, and most important, a strong ecosystem has been created for the telecom sector.
The mainstay of the Indian economy for so many decades, agriculture could well grow faster than the expected 3.4% - a rural road network has been built up, high agri commodity prices would improve terms of trade towards this sector, rural human capital has improved tremendously in the 2000s, new technologies are about to enter on a mass scale, agri reforms such as the APMC acts are being overhauled. Though it is difficult, to time the tipping point, in Indian agriculture – we would expect it to be somewhere after the middle of the decade though we may need to wait till the 2020s for the full impact of these changes to be felt.
Rapidly growing domestic and international markets will keep manufacturing opportunities buoyant, but there would be spoilers in the shape of energy, wage price inflation, the unresolved labour and land issues.
Bottom-line? Overall GDP growth will be around 9.6% annually, even if the government does not do anything radically different. It would be higher if agriculture and electricity, gas and water supply are able to break through their long term institutional constraints. It would be lower if inflation eats into macro-economic stability and law and order conditions get out of hand.
This does translate into greater per capita income and changed households budgets. Here again, transport, education, health and recreation would all be among the most rapidly growing items of consumer expenditures. The tipping point is not so much in health or education in the aggregate, but in goods and services that promise better lifestyles.
Despite such a rosy scenario, India will not rid itself of poverty - almost 200 million persons are likely to remain extremely poor by the end of the decade. Social safety nets would continue to be critical – the impact of these on the fisc can be minimised if governance and institutional change remove inefficiencies in distribution.
Indians remain one of the most optimistic people on the globe, growth prospects are bright even as numerous issues need to be resolved. But the true test of success would be when the energy in entrepreneurs and consumers brings us a greener, more equitable decade.
P.S A more detailed explanation of these forecasts and trends, with graphs was published in the Indian Express, available now on our website.
Sumita Kale and Laveesh Bhandari
5th January 2010, Indicus Analytics
Sumita Kale is Chief Economist, and Laveesh Bhandari is Director, Indicus Analytics.
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