Indian Economy: Bet on it? - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Indian Economy: Bet on it?

Apr 17, 2001

In recent weeks, there has been a lot of ‘not-so-good’ news on the economy front. Growth in industrial production has slipped considerably from 7.2% in November to just 0.6% in February 2001. On the agricultural front (rabi season), the area under cultivation has reduced significantly – 12% for foodgrains and 23% for oil seeds. Growth in the services sector too slowed down, albeit marginally, to 8.1% as compared to 8.4% recorded in the first and second quarters. Overall, the GDP growth rate for FY01 is anticipated to be 5.8% as compared to 6.6% in FY99 and 6.4% in FY00.

  • More on the Indian Economy

    The numbers clearly bring out the fact that the Indian economy is witnessing a slowdown. There is no ambiguity here. Despite this, there is a lot of optimism regarding India’s economic performance. Indeed, stock markets, which at a macro level reflect the performance of the economy, have witnessed foreign inflows of over US$ 2 bn since the start of the year. The RBI governor has gone on record to say that India will be least affected by the US slowdown. Is there any justification for this optimism? Well, there are several. Let’s touch upon only the structural issues, which would affect India’s performance in the coming decades.

    First, over the next two decades, India will witness a significant increase in the proportion of working to total population. In other words the proportion of dependent population (those that do not earn but consume) will reduce. This will benefit the economy in two ways. One, there will be more workers in the economy, thus supporting higher growth. And, two, per capita incomes will be higher as more people work, thus supporting a higher standard of living. This will kick off a much-needed virtuous circle (more money, therefore more consumption).

    Second, population growth, as underscored by the recent census, has already begun to slowdown (1.93% in 2001 as compared to 2.14% in 1991). This is a very important development, as it will support a higher standard of living (more doctors per person, better basic amenities et cetera). Also, given the GDP growth rate, a slower population growth will result in a higher per capita income growth. This again will support a better standard of living.

    Third, literacy levels in India have improved dramatically over the recent years. According to the recent estimates, literacy levels have breached the 65% mark. Just to put this in perspective, literacy level in India in 1901 was 5% and in 1991 it was marginally above 50%. A more literate work force will be more of an asset especially in view of the globalization process sweeping the country. They will be able to handle more specialized jobs and therefore earn better incomes.

    So, in a gist, over the next few decades India will have a combination of slower population growth and a larger and more literate work force. This should help initiate the virtuous circle: more employment – more incomes – more consumption – more investment.

    Apart from these structural issues, there are several recent developments, which underscore one’s confidence in the Indian economy. First, India continues to be one of the fastest growing economies worldwide. The crisis in Southeast Asia and then Russia had only a marginal impact on our economy. The resilience of the economy is clearly evident. Second, there is a general acceptance about the reform process and this should deter any vested interests from sabotaging this process. This should augur well for the economy.

    Although these developments provide us with a launching pad, there is still a need for a catalyst – the government. And this is where it becomes tough to make a call on whether the government will deliver or not! Indications are that things continue to move, albeit at a slow pace. And then there is hope that the reform process will be speeded up. Already, the government has announced several modifications to the labour laws, which were hitherto treated as a sacred cow. These are positive signals. But then, should one bet on India? Yes, but then if you are looking at making a buck, you ought to bear the risk!


  • Equitymaster requests your view! Post a comment on "Indian Economy: Bet on it?". Click here!

      

    More Views on News

    BSE Sensex Surges 707 Points; BHARTI AIRTEL Among Top Gainers (Market Updates)

    Sep 25, 2020 | Updated on Sep 25, 2020

    The BSE Sensex Surged 707 Points; BHARTI AIRTEL Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

    Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

    Jun 1, 2020

    Is too much data hurting your quest for market beating returns?

    Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

    Apr 29, 2020

    Ajit Dayal on how the mutual fund industry robs you of your wealth.

    This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

    Oct 16, 2019

    If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

    Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

    Aug 16, 2019

    Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

    More Views on News

    Most Popular

    Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

    Sep 17, 2020

    This leading household brand will profit big time in a post covid world.

    My Top Stock to Buy in this Market Selloff (Profit Hunter)

    Sep 22, 2020

    The recent correction offers a great opportunity to buy this high conviction smallcap stock.

    What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

    Sep 18, 2020

    Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

    How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

    Sep 17, 2020

    In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

    More

    Covid-19 Proof
    Multibagger Stocks

    Covid19 Proof Multibaggers
    Get this special report, authored by Equitymaster's top analysts now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS