Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economy: Tone down optimism... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 9, 2004

    Economy: Tone down optimism...

    One of the most debated topics is whether the Indian economy can do what China has managed to pull off over the last decade. What we mean here is whether the Indian economy can emulate China and keep up the economic growth momentum for the next decade or so. Before we try to analyse this issue, we would like to analyse the nature of the Indian economy first.

    One of the biggest anomalies, if we can call it that way, is the fact that unlike most industrialized and other developing economies, the Indian economy does not have a large industrial base to boast of. If one were to go back into history, any economy transform from being a agrarian to industrialized into becoming a services economy. In the Indian context, the economy is very strongly dominated by the services sector, and where the industrial sector is not as developed.

    History suggests that economic growth is generally characterized by three stages. The first stage is where a majority of the populace depends on agriculture for income. To cater to the increased demand for products from this section, the process of industrialization gain momentum, which in turn provides employment opportunities. A part of the rural populace also shifts to working in industries. Once the industrial base has been established, the services sector starts developing, mainly to complement the industrial sector and the agricultural sector. Eventually, the services sector becomes the major wealth creator over the long term. This is true for most of the industrialized countries like the US and UK and even developing countries like China.

    However, the same cannot be said about India. Just to put things in perspective, while the industrial sector contributes to around 25% of the GDP, services sector contribution has increased to almost 50%. What we are trying to indicate here is that, the Indian economy has a relatively weak manufacturing sector. Mr. Subhir Gokarn of Crisil also evinced similar view in our recent interaction. There may be different reasons for that. For one, while the green revolution in the early 1980s brought some kind of hope for the agrarian sector, the benefits of the same have been disproportionate and have led to the inadequate development of the rural sector.

    Since 70% of the populace depends on the agriculture sector for income in India, lack of reform on this side has failed to create wealth on a mass scale. As a result, the economy has suffered to an extent. This has had a spill over effect on the industrial sector as well. Instead, the Indian economy has seen a very strong growth in the services sector due to its huge educated population and growing entrepreneurial spirit. Now, why are we emphasizing so much on reforming the agricultural sector and industrialization?

    The reason is employment. While the services sector does create jobs, it does not create adequate number of the same for a majority of the population. This may be because of the fact that for any economy to sustain a high growth rate, demand has to come from the mass population that exists in the villages and small towns of the country. Job creation currently, is largely restricted to the graduate population. Of course, the road construction projects have had a positive impact for sure already on employment. For India to sustain a high growth rate over the next decade, more jobs have to be created. Services alone cannot be the growth driver of the economy and hence the manufacturing sector has to catch up as far as job creation is concerned. For India to truly shine, the unemployment rate, which stood at 7.3% (official figures) in 2000, should be brought under control.

    As Mr. Ajit Dayal, Deputy CIO, Hansberger Global Investors, said "It is wonderful to say 'India Shining'. But it is shining at the top. That tip of the iceberg that you can see is glowing and is snow white. But what about the below part? It is part dark down there".

    Click here to read the interview.



    Equitymaster requests your view! Post a comment on "Economy: Tone down optimism...". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms