Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


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

Is India's growth story over?
Tue, 11 Dec Pre-Open

With Gross Domestic Product (GDP) growth slowing down to sub-6%, many have started questioning India's growth story. But what is growth dependent upon? Consumption, investment, demographics, government expenditure and host of other factors, isn't it? So, when one says that the growth story has started dying down one effectively examines the impact of these factors on growth. However, it should be noted that extrapolating these factors based on their past performance is not a right way to gauge future growth. That's because in changing times not only do the factors change but their impact on growth also changes.

Here we outline a few factors that can play a crucial role in India's growth story. It is perceived that growth is slowing down due to slowdown in reforms. And India's ill-decision making democratic structure is responsible for that. Many cite example of China where authoritarian system has propelled growth since pushing reforms in that kind of a structure is easy. However, a closer look reveals that 52% of the countries that have clocked high growth over the last 3 decades have been democracies. That means nothing is wrong with the Indian democratic structure. It is the intent and understanding which is missing now. However, this may come over time. Also, it should be noted that in a tough environment government could have opted for an easy bail out. Rather it is at least aiming for reforms. So, the measures taken to restore growth are in the right direction, to say the least.

The billionaire list of country also reveals an interesting aspect about growth. Most of India's billionaires are from the IT industry rather than monopolies which have political connections. Thus, growth is fuelled by intellectual edge which is a good sign. Another factor to watch out for is contribution of manufacturing in overall growth. While services have been the pillar for India's growth and manufacturing growth is stagnating, reforms and labour arbitrage can easily lift the share of manufacturing.

However, inflation and infrastructure bottlenecks are the main concern. Trade stagnation with the geographically neighbouring countries is another negative. It may be noted that healthy trading relationships with geographically close nations offer a great advantage. Also, India's growth is dominated by a few megacities. Growth from tier-2 cities is slow in picking up. Here, China has a strong edge.

Overall, while there are some factors that have highlighted that the Indian growth story may not be over yet, there are some hindrances as well. Unless the government makes a collective effort to eradicate the same, growth will continue to suffer.

PS: This article is inspired by Ruchir Sharma, head of emerging markets, at a leading investment bank.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Is India's growth story over?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 20, 2018 (Close)