Jun 4, 2007|
In a country of doubting thomases
We Indians are not used to the economy clipping at straight 9% YoY for four years in a row. These GDP growth numbers have a slightly unreal aura when the common man on the street grapples with frequent power failures, traffic snarls and shortages of essential commodities. But the fact is in the last few years, the common man in India is indeed taking more home, though some more so than the others.
If we dissect the national income numbers released yesterday by the Central Statistical Organisation, the slight changes from CSO's earlier estimate stem from better growth in the manufacturing, construction, and trade and hotels. Electricity, as we can well believe, has slid from the earlier estimate, and so has growth in financial services. Net net, the real economic growth at 9.4% is a shade better than the earlier estimate of 9.2%.
Capacities have expanded
The credit for this spurt in the economy should go to the structural reforms undertaken in bits and pieces over the last decade or more. They have allowed innovations in financing as well as in production processes in the country. This improved efficiencies and productivity and of course bettered margins. Indian industry has bankrolled a major part of its growth through internal accruals. And what is significant, this growth has happened in an era of lower tariff barriers to imports.
CSO's data shows a definite increase in fixed capital - as a percentage of GDP it has increased its share in GDP from 29.1% to 30.5% in FY07. What it means is, investments in production facilities in the past one year have gone up. The Index of Industrial Production as well as the data on capital goods imports bears out this trend.
In the last one quarter, the business environment has changed. The Reserve Bank of India (RBI's) actions in raising the interest rates in its efforts to contain inflationary demand have reduced profitability and also easy availability of funds for most companies. An appreciating currency will work against the exports - 25% of FY07 GDP. The joker in the pack is Chinese policy - if Chinese policies make exports from China expensive, Indian goods will regain competitiveness despite an appreciating Rupee.
All these changes have muddied the waters. Normally interest rate hikes would put brakes on the growth process. But as the RBI gingerly steps in to intervene, one is assured that a complete stop to growth is not what they have in mind. So the aggressive among the companies seek cheaper funds from abroad.
But in general, the financial costs for the economy have gone up. It also has to deal with higher cost structures thanks to its bad infrastructure. Cost per unit of power doubles if a company has to generate its own requirements in the event of the State Electricity Board being unable to provide the necessary load. High transport costs due to slower freight movement with shoddy transport lines, and now higher staff costs, as India Inc comes to grips with the failures in the Indian education system that has shown up in the paucity of skilled technical labour.
Can we overcome?
We estimate these bottlenecks to slow down GDP growth in FY08 to about 8% levels. In the interim, if Dr Singh is able to galvanise his fellow party members into action, and reach a consensus for the setting up a transparent and clean process to channelise the teeming billions of dollars and rupees into bettering India's infrastructure, the GDP growth rate has the potential to vault into double digits for some time to come.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407