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The future of India's growth story in 2010
The five years between 2003 and 2008 have been really great for the economy of India. Has reached about 9% annual growth, which was unimaginable in the days of license raj. In fiscal year 2007-08 alone, the Indian government's income tax increased by 40%. India also catapulted its position as the world's second fastest growing economy after China. But the unexpected area of crisis and subprime its impact on the global economy has continued to India immune.
In 2009, growth fell to 6.5%, the stock market has crashed, like their counterparts in other countries and has not regained its previous record foreign investment that fueled much of the speculative growth and high stock market has declined. People who were "incredibly optimistic" about the growth story of India in the past have become a bit skeptical. But this pessimism is really justified? The answer is a big no. There are sound reasons to be optimistic about the long-term prospects of India's economy.
Compared with other economies such as China, India's economy is less dependent on exports. Domestic consumption accounts for about 75% of India's GDP, while less than 50% of China's economy. The only exception is the industry in India for export-oriented software. U.S. recession has seriously affected the economies oriented export and is expected to continue until the crisis ends completely. Moreover, two other major components of India's GDP, the agricultural and service sectors have not been affected by the global slowdown more. Manufacturing sector, however, feels little heat.
The so-called "rural economy" of India remains vibrant despite the global crisis. This also keeps the demand of essential goods intact. But the global slowdown has undoubtedly affected the "underground economy" in India and is evident in the crash of real estate. Experts say that even in the property sector hit hardest the real recession, there will be resurgence in demand if the prices of bar businesses at affordable levels.
telecommunications sector is another bright spot. telecommunications industry in India continues its spectacular growth despite global problems of the industry. The next auction of 3G and transition in India is expected to bring billions of dollars of investment in both global and national actors. Existing players are also investing large sums for expansion coverage and improve network technology.
The country's banking system is also in good shape. While banks in developed countries face serious accidents and crisis, Indian banks are flooded with deposits and loans are more money than ever. In fact, the collapse of many private banks in developed countries and the feeling of insecurity among the people as a result has increased the flow of NRI deposits in India and strong government ownership of banks public sector.
The strong banking regulatory system has also helped India to weather the storms of the global credit crisis. India's central bank RBI has already made cuts in cash reserve ratio or CRR and Statutory Liquidity Ratio or SLR, to pump more liquidity into the economy. Interest rates are also lows.
The sharp decline in commodity prices as a result of the global financial crisis is really useful for countries like India and China are major importers of commodities. It is also helping to reduce inflation, which reached record levels in late 2008.
Another important cultural factor that could help continue the growth of emerging economies like India and China is the high savings habit of people. Our people is less leveraged individually, compared with the citizens of developed countries.
There are plenty of positive economic factors India in the long term. Undoubtedly, the fiscal year 2009 was a difficult year. However, after a brief pause, India's economy has regained momentum and moves on transcendental.
About the Author
Shareskool.com is an India focused investor education website. It aims to empower investors in India to make independent investment decisions through education and information.
Telecom Immunity