India on a high growth path

All macro indicators reveal that India has the potential of becoming an economic superpower in the next decade, which will reflect in the stock market.

Print Edition: May, 2010

Not only did India weather the recent crisis, it actually grew at a pace second only to China, demonstrating that it has built the foundation for a strong growth. This is good news for all investors. A high-growth trajectory will directly influence the stock market, which will mirror the same path. Here is evidence to prove that the good times may be here for a long time:

Economic factors
The global economy is reviving, which means that trade and credit offtake will improve. Back home, the emphasis on fiscal consolidation should ensure that the government meets its target growth rates and the public debt is under control. The accommodative monetary policy environment created by policymakers shows a flexibility that is necessary at a time when we are recovering from a slowdown.

The fact that the Indian banking system was not crippled by the global malaise stands testimony to its strength in terms of capitalisation. A strong banking network is crucial for industrial growth and Indian banks are prepared to back both the industry and common people. Similarly, the government’s thrust on infrastructural growth should boost productivity, whereas programmes for rural areas will ensure inclusive growth. This is possible due to a stable political environment, which goes hand in hand with economic stability.

Social factors
India is famous for its domestic savings. The consistently high savings rate implies greater economic security for its people. So far, the Indian growth story has not been as inclusive as it ought to have been. A large section of the rural population does not have access to infrastructural amenities like banks, educational institutions, etc. This means, there is enormous potential for growth in infrastructure, consumer goods, etc.

Though there is much work to be done, recent social welfare programmes like the National Rural Employment Guarantee Act, pay revision, higher minimum support prices, etc, have ensured an increase in the purchasing capacity of rural India. However, one of the most favourable social factor is the demographic profile of India. The working age population is expected to shoot up by 240 million in 20 years. This will result in a dramatic growth in productivity and savings. So the longterm positive outlook for India is based on strong fundamentals.

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