Unusually strong growth cycle. India has achieved strong economic growth of 8.2% over the past three years versus 6.2% in the preceding ten years. This compares with average economic growth of 10.3% for China and 5.3% for Emerging ASEAN countries in the past three years. Although we believe that some acceleration is warranted due to structural factors, the greater part of growth has been a result of the sharp rise in capital flows in response to an increase in the global risk appetite. The global liquidity spillover into India has allowed the government to pursue relatively loose monetary and fiscal policies, which have supported the acceleration in cyclical growth.

Structural story – an interplay of three macro factors. The interplay of three key macro factors – demographics, reforms and globalization – justifies a gradual speeding up in India’s pace of growth. India’s age dependency has fallen (the share of the working population in the total has risen), from 64% in 2000 to 59.6% in 2005, and is likely to continue to drop, to 55% by 2010 (according to United Nations’ forecasts). The government’s implementation of gradual but progressive reforms has improved the utilization of the working-age population, a key resource. Finally, a backdrop of strong globalization has enabled growth in job opportunities to accelerate. India’s exports are expected to rise to 21% of GDP as of 2006 from 12.6% as of 2000 (based on our estimates).

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Posted by toughiee on Tuesday, December 19, 2006 at 6:08 PM | Permalink