|»5 Minute Wrap Up by Equitymaster|
On This Day - 6 OCTOBER 2010
The clicks that could add to India's GDP
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The causes of low e-savvyness are not difficult to find. Two thirds of India's population that resides in rural areas is increasingly getting familiar to mobile phones. But unfortunately, 84% of them are yet to get introduced to the internet. Infact, not just rural, but also a large section of urban Indians have few means of accessing the internet. Only 4% of Indians owned personal computers in 2009 as against 20% in China. One, computers are yet unaffordable to most low income families. Two, poor wireless connections have been a key dampener. But that does not mean internet has not proven its worth to Indian businesses. Firms offering online travel bookings, recruitment and retail have seen their sales soar in the past decade. Further they are together expected to lock in sales to the tune of US$ 7.5 bn by 2014.
As per the World Bank, the payoffs of higher internet penetration could be exemplary. It states that every 0.1% increase in internet penetration could add 1.38% of the per capita GDP in developing economies like India. The rationale for more Indians clicking on to the world wide web is thus well laid out. However, the pace of growth would be crucial. Only then would Indian companies eyeing a larger pie of the rural market be able to leapfrog their growth targets.
Soros compared the US economy with the skidding of a car. He opined that in case a car skids, we have to move the car in the direction of the skid. And only when we have regained control, we can correct the direction of the car. According to him something exactly similar has to be done with the US economy. The economy is not out of the woods yet. Hence, it will be foolish to do away with the stimulus measures as per Soros. He argued that only when the economy shows signs of recovering should deficit and debt be reduced. He further added that the first stimulus was spent entirely towards boosting consumption and this is the reason it failed.
Hence, he now wants any fresh stimulus to be spent towards building infrastructure and education. Soros believed that the Government would make a grave mistake by not coming out with any further stimulus. Of course, the US would ratchet up more debt if it spends heavily yet again but as per him, premature tightening may choke off the recovery prematurely. And this, he believes, would be a far more dangerous thing to do than taking up more debt.
The RBI has so far been following a restrictive policy as far as giving new branch licences to these overseas banks is concerned. All in all, the banking industry looks all set to have a much larger role being played by foreign banks. Something it has traditionally not been used to.
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