Economy: Strong political will is the key... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Economy: Strong political will is the key...

Jan 6, 2004

When various economists had predicted a strong GDP growth for India, the expectations had to be taken with a pinch of salt. However the second quarter performance of the Indian economy, in terms of GDP growth, seems to have vindicated the stand of most economists around the country. The second quarter GDP growth stood at 8.4% compared to 5.7% in the first quarter. What do these numbers point to and is this growth rate sustainable?If one were to look at the table below, the sectors that are the major constituents of the GDP are the ones growing the fastest, unlike a well spread-out growth in all the sectors of the economy. For instance, the services sector, which constitutes almost 52% of the GDP, grew by a significant 9.9% in the September (7.6% in the June quarter). Growth in all the constituents of the services sector was mainly responsible for the overall growth for the sector. The various constituents are mentioned below.

  YoY Growth (%) 
Mining and Quarrying
Electricity gas and water supply3.84.82.9
Trade, Hotels, and Communications10.79.611.9
Financing, Real estate and business7.27.17.3
Community, social and personal6.74.39
GDP at factor cost7.05.78.4

The industry too has not disappointed. Compared to a growth rate of 5.8% in the June quarter, industry recoded a growth of 6.3% in the September quarter indicating the sustained revival of the sector observed since the last couple of years. As far as the third largest constituent of the GDP is concerned, i.e., agriculture, it recorded a growth rate of 7.4% in the September quarter compared to 1.7% in the June quarter. This is primarily due to adequate rainfall in 2003, which has led to projections of record output for agricultural produce.

If one were to analyse in detail, we observe that among the services sector, growth in the travel and tourism industry coupled with the telecom sector has been the main contributor to the robustness in the services sector. The travel and tourism industry, which was under a prolonged slowdown, has seen a revival in the last 2-3 quarters and higher tourist inflows (growth of nearly 15% compared to 2002) have benefited the sector immensely. The telecom sector on the other hand has been helped by the significant rise in the user base mainly due to falling tariffs (WLL services have been the main cause for that).

Industry has been helped immensely by the strong growth seen in manufacturing as well as the construction sectors. This may be attributed to the strong growth in demand from both the domestic and export markets that the Indian companies are increasingly catering to. Construction activity in the form of road projects may be one of the main contributing factors for the strong growth.

As far as the sustainability of the GDP growth is concerned, one needs to understand the importance of higher level of investments in the economy. This is where China has benefited immensely from high FDI inflows and has managed to maintain a strong GDP growth in the last decade or so. While the contribution of agriculture to the total GDP has declined over the years, a significant part of the population continues to rely on agricultural income, thus ensuring a higher dependence of the GDP on agriculture. This is where investments in industry will play a larger role in creating higher employment for the rural masses. Further relaxation of the FDI norms may be required down the line.

Availability of power (cheap and continuous) is a major determinant of the sustainability of economic growth for any country. In India, the poor quality of power infrastructure continues to be one of the major hindrances to larger investments by foreign entities interested in setting manufacturing facilities in the country. While steps have been taken to reform the power sector, the speed of implementation of the reforms process is the crucial question here.

In conclusion, the services sector, which has been the star performer for the Indian economy for over a decade now, should not be the only growth driver of the economy. India has immense potential in the manufacturing sector that is still unexplored. The only hindrance to the same is inadequate basic infrastructure like roads and electricity. Strong political will to aggressively implement the reforms process and to further open up the economy is the need of the day and that is what is required to sustain this high level of GDP growth.

Equitymaster requests your view! Post a comment on "Economy: Strong political will is the key...". Click here!


More Views on News

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

ONGC to NMDC: Here are 5 Stocks Value Investors Should Closely Track (Views On News)

Nov 26, 2021

Before investing in value stocks, research the company and gain insight into why the market is discounting it.

How to Prepare for a Stockmarket Pandemic in 2022 podcast (Views On News)

Dec 6, 2021

The transition from a small correction to a market crash to a bear market may be without any warning.

SEBI Issues Operating Norms For Silver ETFs. Here is All You Should Know (Outside View)

Dec 6, 2021

SEBI has issued operating norms for Silver ETFs to ensure uniformity of the schemes.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 6, 2021 03:22 PM