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India: Uniquely 'D'ifferent - Views on News from Equitymaster
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  • Feb 21, 2007

    India: Uniquely 'D'ifferent

    India's growth story is something of a phenomenon with the Indian economy registering high growth rates over the last couple of years. Among its Asian peers, India is second after China in terms of growth rate and foreign investments. However India follows a very different growth model than that of its Asian peers.

    Democracy: India follows the principle of democracy unlike its peers. Other Asian countries like Thailand, Singapore South Korea, Taiwan and Indonesia were either ruled by a strong authority or had very restrictive political systems. Japan and China too were under autocratic rule. Unlike the pattern amongst other countries to initially grow and then slowly allow freedom, India's rapid economic growth is different, as it has functioned on the democracy mechanism.

    Demographics: The growth optimists point to India's favourable demography. Nearly two-third of India's one billion plus population is under 35 years of age, making it one of the youngest nations in the world on a sizeable base. The median age is about 24 years as compared to 35 years in the United States, 41 years in Japan, and 30 years in China. The population of working age will continue to rise for several decades, whereas in other Asian countries like China it is expected to fall. This, it is argued, will boost India's workforce and both saving and investment. Furthermore, 60% of India's labour force is engaged in low productivity farming. As workers shift from agriculture to more productive jobs in industry and services, this will automatically boost GDP growth. The 15-24 and 25-59 age groups have grown by 35% and 41% respectively over the last decade. These age groups will boost consumption - as they have higher earning capacity and will also be able to spend more on themselves.

    Domestic market: India itself is a huge market. With a population of more than 1 bn people, India has a consumption-centric culture. Much of the demand in the East Asian countries comes from exports to the developed world, while in India most demand is based on domestic consumption growth. Private consumption currently accounts for 64% of Indian GDP - higher than shares in Europe (58%), Japan (55%), and especially China (42%). India's transition to a 7% growth in recent years is very much an outgrowth of the emerging consumerism of one of the world's youngest populations. The growth of private consumption provides a powerful opportunity to the Indian growth story.

    Dependence on the service sector: The services sector accounts for a robust 63% of the economic output and grew by an unprecedented 10.1% in FY06. It is expected to grow by 10.9% in FY07. Significant increases in the demand for domestic services, information technology services and business process outsourcing (BPO) sectors also are witnessing robust growth due to growing international demand for skilled, low-cost, English-speaking Indian workers. They follow the method of manufacturing low technology products and then move up the value chain to produce products like automobiles. However, India has leveraged on the skills of educated middle class to strengthen the various service offerings like software, banking, hotels and telecommunications. However, now India is also turning into manufacturing hubs for many MNC's like Unilever, Ford and pharma MNCs among others.

    Though India continues to face problems with respect to political stability, corruption, poverty, infrastructure hurdles, fiscal deficit, the makeover in India's image from a 'land of snake charmers' to a 'land of immense opportunities' has been rapid. India rising is for real and will only intensify in the time to come.



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