Follow us
Stay Informed about the Latest News
Sign up to our newsletter
Back to news

India will Make It

There is no doubt about it. The Indian economy is facing some challenges. Growth rates that were close to 8% for a decade have significantly plummeted and are expected to drop below 5% in 2013. This growth rate that could be envied by the vast majority of developed countries is simply not enough for a country like India. For the Indian authorities themselves, the fight against poverty, which still affects over 300 million people, can only be effective with a GDP growth of at least 8% per year. But India is suffering from structural problems which, in the absence of massive foreign investments, will take quite a while to be redressed. And obviously the slowdown experienced in recent years by the global economy has had serious consequences on the country's development. The drop in demand from Western countries is thus a major concern for a country that has often displayed a strong deficit in foreign trade. The Prime Minister Manmohan Singh has tried to reassure the international community, by stressing that the comparison with the disastrous year of 1991 which saw India on the verge of defaulting on its debt was not valid. Moreover, the appointment of a new governor at the head of the Indian Central Bank, Raghuram Rajan, has enabled the authorities to diplomatically communicate about this former chief economist of the IMF, whose qualities could contribute effectively to the economic recovery of the country. These statements did not however prevent the IMF from pointing out that due to the combining of a large budget deficit and of the current account balances, India had become more vulnerable to external shocks. In fact, the pressure on the country was aggravated with the decline in foreign capital in search of territories considered less risky. Moreover high inflation increases the difficulties of a significant proportion of the population, whose bulk of expenditure is on food, forcing the government to increase subsidies in a pre-election period whose outcome in May 2014 seems uncertain. And of course these measures will further increase the deficit of the public accounts.

All those scrutinising India’s current challenges agree on at least one observation. India urgently needs significant investments to develop its roads, railways, ports and airports, and especially its energy network. The huge power outages that affected nearly 600 million Indians in 2012 and weighed down on industrial production are still in everyone's mind.

The mobilization of substantial capital is an urgent requirement perfectly understood by the World Bank and the Indian authorities. This is the key to the country's development. It is within this challenging context that the Indian government announced a plan to launch and support 36 priority infrastructure projects amounting to $ 27 billion. Half of these projects are in the energy sector, particularly oil and natural gas. It should be noted that India also has every reason to develop its renewable energies especially solar energy in a country that experiences significant pollution problems and enjoys 300 days of sunshine per year.

Yet behind this observation which is patchy to say the least, India has key assets. India is already the 3rd economic power in Asia. It will certainly in twenty years be amongst the 5 largest global economies.

It is the country with the highest number of young people under 25 in the world and which is especially witnessing the emergence of a "middle class" estimated over 250 million people, eager to consume, increasingly mobile and experts in new technologies. Yet the strengthening of domestic demand and the rapid deployment of new technologies are powerful predictors of a robust economic development.

But India will also, because of its population, maintain low salary costs for a long time, which is unlike many current emerging markets, thereby allowing it to strengthen and develop production bases for many large industries that use labour.

India is a huge market often made complex by its bureaucracy. This market should be approached with patience. The recent failure of the free trade agreement between Europe and India under discussion since 2007, illustrates the difficulty of opening up this country. But India is taking steps to attain the status of a world power. It will make it, tomorrow or the day after tomorrow.

Yves Cywie / November 7th 2013

Post a comment

Please check that the information in the fields here below is correct.

Your comment is awaiting approval and will soon appear below!

Comments :

  • No comments
Created by
Stay Informed about the Latest News
Sign up to our newsletter