India's golden decade just beginning

India's golden decade just beginning

Tell anyone who has spent a long time in India that the country's economy is about to take off and chances are that they will either laugh or tell you you are crazy. But emerging economies often experience a rapid growth spurt at some point in their development, and many believe that India is on the cusp of such a period.

Following in the footsteps of China, Brazil

With a weakening currency and sluggish share prices, you could be forgiven for thinking the outlook for the Indian economy is bleak. The recent introduction of an infrastructure tax on vehicles casts doubt on India's new vehicle market, which had been the lone grower among major emerging economies.

Yet other figures paint a different picture. According to the International Monetary Fund, India's per capita gross domestic product probably reached around $1,700 in 2015, despite the weaker rupee. In many emerging countries, a $2,000-$3,000 range indicates that the country has acquired basic economic and social infrastructure and its various industries are ready to thrive. India is not far off that figure.

China saw its nominal GDP per person soar over a decade from $1,700 in 2005 to $7,600 in 2014. Brazil saw its figure swell from $2,900 in 2002 to $13,200 in 2011 partly because a stronger real boosted its output figure in dollar terms. India is expected to follow in the same path. Annual economic growth of around 8% over the next 10 years will almost double India's nominal GDP, not accounting for inflation or changes in the foreign exchange rate.

Skeptics are unlikely to share such optimism, citing issues such as inefficient government, contradictory policies between the central and state governments, bickering between local administrations, and state companies' dominance in several industries.

However, these issues are far from endemic to India. Anyone who tried doing business in China during the 1980s and 1990s will look back with dread on the process of getting approval for just about anything. Even if you stuck it out and permission was eventually granted by Beijing, local governments could still put their oar in leaving you back at square one. The Kafkaesque nightmare worked both ways and many just gave up. Brazil is no different, with ever-changing administrative decisions and infinite amounts of red tape putting off many would-be investors and entrepreneurs before they even start.

Some complain that doing business across different states in India results in additional taxes and fees. But that also was not uncommon across China. Moreover, inefficient government and dominant state companies are just as problematic in China and Brazil as in India. Shielded by regulations, cumbersome state-owned giants stifle the growth of private companies.

Despite being mired in problems, once growth gets underway, emerging economies often see it snowball for a period. Both China and Brazil continued to grow at an extraordinary pace for 10 years.

Happy Investing

Source:Moneycontrol.com