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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  DECEMBER 15, 2003

    Economy: Building BRIC by BRIC!
    MYSTOCKS | FREE NEWSLETTER

    In the midst of stock markets in India giving a thumbs-up to the reforms process of the government and displaying renewed optimism in the strong growth prospects of the Indian economy, one report from Goldman Sachs has raised considerable attention in the very recent past. This report predicts India to be the fastest growing and the third largest economy in the world, after China and the US, by 2050. In wake of this report, we decided to conduct a poll asking our viewers regarding their views towards the report. And the response we received seems in line with what we believe to be true for India.

    But, what is the report all about?
    Before moving on to the response, let us take a quick look at the contents of the report. The report states that Brazil, Russia, India and China (or BRIC) could become a much larger force in the world economy by 2050 and that these could be larger than G6 countries. Notably, around two-thirds of the increase in US dollar GDP from these BRIC economies would be contributed by high real growth. The remaining, however, would be a result of currency appreciation. Goldman Sachs has, as a basis for this report, used factors like economic size, economic growth, incomes and demographics, global demand patterns and currency movements.

    The response to the poll...
    The question we asked was whether our viewers considered this report's projections to be realistic in nature. And of those who voted in the poll, around 59% believed that the report was indeed realistic (this seems a justification of their faith in the ability of the Indian economy to cross higher barriers towards strong and sustainable growth in the future). Out of the remaining, while 35% were of the view that the reported predictions look unrealistic, the remaining 6% decided to remain neutral.

    The above response, probably, goes in line with the general view that the Indian economy is moving fast on the growth curve with all support from its constituents - industrial, services and agricultural sectors. Also, government's initiatives on the infrastructure development front have helped the cause of the Indian economy.

    Our view...
    Our views regarding this poll would only be a reiteration of what we have been saying all this while. The Indian economy is moving on a higher growth trajectory and in the long-term, we believe, India would definitely be an economic power to reckon with. However, we would not like to put forward any quantitative projections to our view regarding the Indian economy's growth prospects. While the report predicts India to be the fastest growing of these BRIC economies over the next 50 years, that would require gargantuan efforts on the fronts like financial sector and structural reforms, and institutional buildup.

    Source: Goldman Sachs' report

    The report, in itself, mentions certain important factors like macro-economic stability, efficient institutions, openness to trade and FDI and high education levels as factors that would play determining roles in these predictions becoming a reality. Especially for India, which still lags other developing countries on the last three factors, the need of the hour (and hours to come) is to initiate greater and faster reforms on these fronts. Not only would this help the Indian economy to gear up to face global challenges, this would also help India promote its cause in the global marketplace.

    One factor that puts India in a position of great advantage is its growing proportion of working population. This is one of the factors that will play a big role in the growth of the Indian economy. Not only a growing working population, but also a growing 'intelligent' working population is what India is looking forward to. Another factor that would play a defining role in India's pursuit towards higher growth would be political stability. If India is to achieve its targeted growth rates going forward, we need stable governments, both at the Centre and the states. Stability in governance would bring about stability in policy decision and implementation processes, laying foundations for the development of the Indian economy.

    However, there is a caveat - one factor that may hinder India's move on this high growth curve - corruption. While growing levels of corruption threaten not only India but also the entire world, very high levels of corruption in Indian politics and bureaucracy have hampered the Indian economy achieving its true potential in the past. More than that, this danger continues to hang like the sword of Damocles on the future of India.

    As all the abovementioned factors play their respective roles, and that the Indian economy continues its move up the value-chain, i.e., a higher and more sustainable growth, the fruits are likely to flow to investors in the Indian growth story. But, as the report speaks, things might (might!) look out of sync in the short-term but, in the long-term, if serious efforts are made as for the initiatives mentioned above, there will be nothing stopping India! Investors, as we reiterate, need to have a long-term perspective before making investments in the Indian equity markets. While in the short run, we are bound to witness (mis)adjustments (read, volatility) in market movements, quality investments would definitely turn out adequate returns in the long-term.

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