09-25-2003, 08:53 PM
I am not sure whether this is the most appropriate thread, i guess at some point we need a thread on the economy.the url is by subscription only
THE WALL STREET JOURNAL ONLINE, SEPTEMBER 25, 2003
INDIA IS POISED FOR FASTER GROWTH
ECONOMISTS EXPECT NATION TO JOIN
CHINA AS A POWERFUL ASIAN ENGINE
By JAY SOLOMON
Staff Reporter of THE WALL STREET JOURNAL
NEW DELHI -- Is India finally set to join China as a powerful new economic growth engine for Asia? Judging by the speed at which economists are ratcheting up growth estimates here, it certainly looks that way.
Government officials are predicting that India's inflation-adjusted growth for the current fiscal year, which ends March 31, may "significantly exceed" New Delhi's earlier forecast of 6% growth and could approach 8%. Private investment firms concur, estimating growth of as much as 7.5% and citing the potential for even faster expansion down the road.
With economies in the U.S., Europe and Latin America still wobbly, India's emergence could be one of the world's most important economic-trend stories over the next two decades. More immediately, the growth explosions in India and China, the world's two most populous nations, signal an inevitable changing of the guard in Asia. East Asia's traditional tiger economics, in countries such as South Korea, have seen their export-driven models challenged by sluggish global trade.
Indians increasingly feel that their country has chosen the right balance of growing its domestic economy and its export economy at the same time. And no country, many Indians feel, is better positioned to profit from the global boom in information-technology services than their own.
Foreign capital is increasingly taking notice of India's growth. International portfolio investors have poured $3.65 billion into Indian equities so far this year -- up from $763 million for all of 2002 -- helping the country's main index rise by 50% since late April.
At the same time, private-equity firms, mainly from the U.S. and Europe, have injected $300 million to $500 million into Indian companies since January, according to the Indian Venture Capital Association, with the bulk of it in long-term capital commitments. Blue-chip U.S. investment houses such as Warburg Pincus, Citibank's private-equity arm and Carlyle Group are among those who have recently bought stakes in Indian companies, aiming to tap into the country's growing consumer class and its emergence as a center for software development and information-technology services.
"My bet is that India will begin to outperform China within the next five years," says Rajiv Lall of Warburg Pincus in New York, whose firm has invested roughly $600 million in India since 1993. In fact, Warburg Pincus is one of the few Wall Street firms that have placed a bigger bet on India than China. Warburg is currently in discussions to purchase a major stake in closely held food concern Radhakrishna Foodland Ltd., and Mr. Lall says his firm should close a number of Indian transactions in "the near future."
Positive Cyclical Factors
Economists cite several cyclical factors as contributors to India's growth this year. The country is enjoying an excellent monsoon season after last year's drought, providing hundreds of millions of farmers with more cash to buy everything from cellular phones to motorcycles. Meanwhile, companies are again investing significantly in their new production facilities, after many suffered from overcapacity following an anticipated boom in the mid-1990s that never materialized. A July survey of business confidence by a leading Indian institute showed the most optimistic outlook since mid-1995.
Important structural changes in the Indian economy are also driving consumption and investment patterns. Construction of everything from ports to telecommunications networks has accelerated and Prime Minister Atal Bihari Vajpayee's support for a $10 billion nationwide road-construction program is expected to be a boon for cement and steel companies. Banks are reporting a 30% rise in loans to consumers and a 30%-35% increase in home mortgages, as they shift from focusing on corporate loans to the country's growing middle class, an estimated 250 million Indians.
These trends are filtering through to the wider economy. Car sales, for example, jumped 26% for April to August this year compared with the same period of 2002. "There are only six cars for every thousand people in India ... We can only grow," says Jagdish Khattar, chief executive of India's largest car manufacturer, Maruti Udyog Ltd., which produces 600,000 units annually.
As Indian companies reduce costs and focus on competing with foreign firms in India's increasingly open economy, their earnings are also improving. Investment banks such as Citigroup's Smith Barney are projecting earnings growth of 25% to 30% among top-tier Indian companies, as they benefit from cheaper credit and growing demand for their services and products from foreign companies. In addition to operating call-centers and back-office operations, Indian companies also are increasingly being tapped to produce high-end products such as auto components and pharmaceuticals.
"In our opinion, the frontline Indian companies have never been in better shape since liberalization began in 1991," declares a September report on the India economy by Smith Barney.
Despite such optimism, the International Monetary Fund and the World Bank warn that India will struggle to reach its 8% annual growth target set out in the government's current Five-Year Plan without more rigorous reforms. They point to New Delhi's yawning budget deficit, which stood at more than 10% of gross domestic product in the past fiscal year. The World Bank projects that without strong efforts by New Delhi to raise tax revenues and cut spending on subsidies and civil-service salaries, the rising debt could stifle expansion and cap annual growth at 5%.
Impact of Debt Load
The World Bank and IMF aren't predicting a balance-of-payments crisis for India, as the government is holding $85 billion in foreign reserves and India is running a healthy current-account surplus. But World Bank officials do say New Delhi's debt load -- owed mainly to domestic lenders -- is undercutting the government's ability to fund new infrastructure and development programs. "Interest payments are crowding out public spending," says Mark Baird, who wrote this year's World Bank report on the Indian economy.
The World Bank and others are also pushing New Delhi to move more aggressively to open up the economy. Despite recent initiatives, they say India still maintains among the highest average tariff rates in the developing world. Steps to privatize state-owned companies have faced stiff resistance from labor unions and political parties. And caps on foreign investment in sectors such as retailing and the media have denied India a potentially hefty inflow of new funds.
"In India, it's the sectors where the government isn't interfering that are thriving," says Rishi Sahai, a principal founder of the Indian Venture Capital Association.
Write to Jay Solomon at jay.solomon@wsj.com
Updated September 25, 2003
THE WALL STREET JOURNAL ONLINE, SEPTEMBER 25, 2003
INDIA IS POISED FOR FASTER GROWTH
ECONOMISTS EXPECT NATION TO JOIN
CHINA AS A POWERFUL ASIAN ENGINE
By JAY SOLOMON
Staff Reporter of THE WALL STREET JOURNAL
NEW DELHI -- Is India finally set to join China as a powerful new economic growth engine for Asia? Judging by the speed at which economists are ratcheting up growth estimates here, it certainly looks that way.
Government officials are predicting that India's inflation-adjusted growth for the current fiscal year, which ends March 31, may "significantly exceed" New Delhi's earlier forecast of 6% growth and could approach 8%. Private investment firms concur, estimating growth of as much as 7.5% and citing the potential for even faster expansion down the road.
With economies in the U.S., Europe and Latin America still wobbly, India's emergence could be one of the world's most important economic-trend stories over the next two decades. More immediately, the growth explosions in India and China, the world's two most populous nations, signal an inevitable changing of the guard in Asia. East Asia's traditional tiger economics, in countries such as South Korea, have seen their export-driven models challenged by sluggish global trade.
Indians increasingly feel that their country has chosen the right balance of growing its domestic economy and its export economy at the same time. And no country, many Indians feel, is better positioned to profit from the global boom in information-technology services than their own.
Foreign capital is increasingly taking notice of India's growth. International portfolio investors have poured $3.65 billion into Indian equities so far this year -- up from $763 million for all of 2002 -- helping the country's main index rise by 50% since late April.
At the same time, private-equity firms, mainly from the U.S. and Europe, have injected $300 million to $500 million into Indian companies since January, according to the Indian Venture Capital Association, with the bulk of it in long-term capital commitments. Blue-chip U.S. investment houses such as Warburg Pincus, Citibank's private-equity arm and Carlyle Group are among those who have recently bought stakes in Indian companies, aiming to tap into the country's growing consumer class and its emergence as a center for software development and information-technology services.
"My bet is that India will begin to outperform China within the next five years," says Rajiv Lall of Warburg Pincus in New York, whose firm has invested roughly $600 million in India since 1993. In fact, Warburg Pincus is one of the few Wall Street firms that have placed a bigger bet on India than China. Warburg is currently in discussions to purchase a major stake in closely held food concern Radhakrishna Foodland Ltd., and Mr. Lall says his firm should close a number of Indian transactions in "the near future."
Positive Cyclical Factors
Economists cite several cyclical factors as contributors to India's growth this year. The country is enjoying an excellent monsoon season after last year's drought, providing hundreds of millions of farmers with more cash to buy everything from cellular phones to motorcycles. Meanwhile, companies are again investing significantly in their new production facilities, after many suffered from overcapacity following an anticipated boom in the mid-1990s that never materialized. A July survey of business confidence by a leading Indian institute showed the most optimistic outlook since mid-1995.
Important structural changes in the Indian economy are also driving consumption and investment patterns. Construction of everything from ports to telecommunications networks has accelerated and Prime Minister Atal Bihari Vajpayee's support for a $10 billion nationwide road-construction program is expected to be a boon for cement and steel companies. Banks are reporting a 30% rise in loans to consumers and a 30%-35% increase in home mortgages, as they shift from focusing on corporate loans to the country's growing middle class, an estimated 250 million Indians.
These trends are filtering through to the wider economy. Car sales, for example, jumped 26% for April to August this year compared with the same period of 2002. "There are only six cars for every thousand people in India ... We can only grow," says Jagdish Khattar, chief executive of India's largest car manufacturer, Maruti Udyog Ltd., which produces 600,000 units annually.
As Indian companies reduce costs and focus on competing with foreign firms in India's increasingly open economy, their earnings are also improving. Investment banks such as Citigroup's Smith Barney are projecting earnings growth of 25% to 30% among top-tier Indian companies, as they benefit from cheaper credit and growing demand for their services and products from foreign companies. In addition to operating call-centers and back-office operations, Indian companies also are increasingly being tapped to produce high-end products such as auto components and pharmaceuticals.
"In our opinion, the frontline Indian companies have never been in better shape since liberalization began in 1991," declares a September report on the India economy by Smith Barney.
Despite such optimism, the International Monetary Fund and the World Bank warn that India will struggle to reach its 8% annual growth target set out in the government's current Five-Year Plan without more rigorous reforms. They point to New Delhi's yawning budget deficit, which stood at more than 10% of gross domestic product in the past fiscal year. The World Bank projects that without strong efforts by New Delhi to raise tax revenues and cut spending on subsidies and civil-service salaries, the rising debt could stifle expansion and cap annual growth at 5%.
Impact of Debt Load
The World Bank and IMF aren't predicting a balance-of-payments crisis for India, as the government is holding $85 billion in foreign reserves and India is running a healthy current-account surplus. But World Bank officials do say New Delhi's debt load -- owed mainly to domestic lenders -- is undercutting the government's ability to fund new infrastructure and development programs. "Interest payments are crowding out public spending," says Mark Baird, who wrote this year's World Bank report on the Indian economy.
The World Bank and others are also pushing New Delhi to move more aggressively to open up the economy. Despite recent initiatives, they say India still maintains among the highest average tariff rates in the developing world. Steps to privatize state-owned companies have faced stiff resistance from labor unions and political parties. And caps on foreign investment in sectors such as retailing and the media have denied India a potentially hefty inflow of new funds.
"In India, it's the sectors where the government isn't interfering that are thriving," says Rishi Sahai, a principal founder of the Indian Venture Capital Association.
Write to Jay Solomon at jay.solomon@wsj.com
Updated September 25, 2003