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India: A economic renaissance - Views on News from Equitymaster
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  • Feb 8, 2002

    India: A economic renaissance

    Use of the clichéd line 'Winds of change are blowing' would not be out of place to describe the state of affairs as an extra-ordinary week comes to a close. Undoubtedly, the government delivering on the divestment front is the reason to celebrate.

    The government getting out of businesses that are not its business will certainly be a point of inflection in the economic history of India.

    With the private sector gaining control of the business previously run by the state the most critical success factor that was missing will now be instilled and that is accountability. This, we sincerely hope, will improve productivity. India ranks very low compared to developed economies when it comes to productivity. According to data given in a report of McKinsey & Co, if the productivity in the US were considered to be 100, India's figure would be an appalling 8. Years of protection and state controll have severely retarded the development of free enterprise. With the government moving away, the state run enterprises that had become the Indian equivalent of social security systems will now be forced to consider basic economics like earn more than you spend or else close shop and scoot.

    A host of reforms are also taking place in the agricultural sector. Though these are not so much in the limelight as they do not generate quick money (read impact stock prices). The centre recently allowed the free movement of grain across state borders. This would help the agro industry to grow outside states that have a surplus, as these industries now will be able to get inputs for their products. Also, the move will help states that fall short of grain requirement to achieve price stability. Rural India being able to realise a good value for its major source of occupation is critical to the growth of the economy.

    And finally, LIC has sharply lowered the assured returns on its survival benefit option for Jeevan Sneha Policy from 11% to 8%. Though investors are not going to be a happy lot, they should appreciate the fact that the company is not keeping them in the dark. Falling interest rates have made it impossible for these companies to deliver the abnormally high-assured returns. Those who continue to do so are only turning their attention from the harsh reality. They better face it now rather than sometime later when things get worse.

    The sales figure for Indica, the indigenously designed and developed car, for the month of January showed a 148% growth. This is just in illustration of the capabilities of the Indian private sector that can take on global competition anytime. The auto sector has already seen strong growth in demand, the FMCG is likely to get a push from the rural markets and the government has time and again proved that it means business. This should be good enough bring back the investments from the market movers like FIIs who in January invested only one-ninth of what they did last year.

    After all it is not everyday that a nation is reborn.



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