Is the bear phase over?
by R N Bhaskar/ DNA Money
It may be, for now. But unless economic reforms are pushed seriously, the bulls could be out of breath once again
Optimists have begun to look expectantly at the stock market indices once again. They believe that - sooner than later - the bull-run will resume. It possibly will within a few months; but the big question is, whether it can be sustained. And there are strong indications that storm clouds lie not far ahead. Take the first table. One thing that amazes anyone about India is that while 21% of its GDP comes from exports, its share of world exports is a meagre 1.8%. When it comes to manufactured products, India’s share in the world market drops to just 0.8% compared to China’s 7.2%
Evidently, if India needs to make its mark in the world export market, it will need to export more, and also make its GDP expand much further. This will require domestic consumption to increase rapidly; and that will require more purchasing power. This can only come from more jobs. For this it will need more qualified people, more educated persons to man its factories, and more value-added from agriculture. And that is where the key reform packages of India appear to be missing - allowing flexible policies in creating and moving jobs on the one hand, and corporate inputs in agriculture on the other. Without them, new investments in manufacturing will take longer to materialise; slowing down job formation, and hence purchasing power. Domestic GDP is likely to grow slower. And it will need a great deal more money and skills going into education, failing which India could find itself in a growth trap; where opportunities beckon its entrepreneurs, but the staff required to deliver on the orders may just not be available.
There is another reason why educating India’s teeming millions will become critically important. Agriculture accounts for a significantly higher share of GDP for India than for many other countries. India’s agriculture contributes as much as 21% to its GDP, which is significantly higher compared to others. On the other hand, the contribution of industry to India’s GDP is one of the lowest. While it is true that the contribution of services has swelled considerably, large-scale employment and economic growth can only come from employment in the industry segment - particularly small and medium enterprises.
But, to make this meaningful, investors will have to find (a) skilled employees, (b) flexible labour laws and (c) easy movement of goods across India and also in and out of India. The pre-condition for making this transition take place will be more and speedy reforms in education and labour, laws relating to the starting and stopping of factories, and the movement of goods across the country. If these reforms don’t take place soon, foreign investors may soon decide to look elsewhere, leaving the stock market bull a bit out of breath once again.
(The author is a former journalist, currently working with a company engaged in Interactive Distance Learning and can be contacted at rnb@yes2etl.com)
