India's trillion dollar economy
By Siddharth Srivastava
NEW DELHI - It is the kind of talk that has made the world look toward India.
Signifying market value, investment potential and growth prospects, three
independent projections have recently crossed the magic trillion-mark.
With the rupee appreciating sharply, the Indian economy crossed the US$1
trillion mark last week, making it the 12th country to achieve the milestone,
according to Credit Suisse.
"Indian gross domestic product [GDP] at the current price level is
Rs41 trillion. With the rupee appreciating to below 41 against the US dollar,
yesterday [last Wednesday] was the first day for the economy to be a
trillion-dollar economy," the Swiss investment firm said.
The rupee, which is trading around 40-41 to the dollar, has appreciated about
8.4% this year and is up 15.4% from a three-year low of 47.04 last July.
As recently as 2000-01, India's GDP was less than $500 billion, which means it
is more than twice the size in the past six years, due to consistent 8-9%
growth.
According to expert calculations, even if the economy grows by as little as 5%
this fiscal year and inflation hovers around 5%, the country's GDP for 2007-08
would be comfortably over $1 trillion even if the exchange rate moved back to
Rs45 to the dollar.
Meanwhile, Mukesh Ambani-promoted Reliance Industries Limited (RIL), India's
most valued firms, with a market cap of more than $50 billion, has become the
first private entity to cross the Rs1 trillion ($25 billion) revenue mark.
RIL's net profit for the fiscal year 2006-07 crossed Rs100 billion, while
revenues soared past Rs1 trillion. Fiscal-year net profit jumped by more than
20%, while turnover zoomed by 29%.
"I am pleased to report yet another year of robust performance by RIL. [Fiscal
year] 2006-07 has also been an eventful year for the company," RIL chairman
Ambani said, attributing the performance to robust growth in petrochemicals and
refining businesses.
In another trillion-dollar story, the accumulated wealth of the
20-million-strong non-resident Indians (NRI) community has been estimated to be
more than $1 trillion, more than the Indian economy of about $850 billion at
the time of preparing the report.
These are the findings of a High-Powered Expert Committee appointed by the
federal government to find ways to make Mumbai an international financial hub.
Overseas Indians are estimated to hold financial wealth, apart from real
estate, gold and art, of more than $500 billion, while total wealth is pegged
at more than $1 trillion.
"These NRIs were a natural beachhead as a customer base where an Indian
personal-wealth-management industry can get started. Their wealth-management
services were ... being sourced almost exclusively from abroad,'' the report
said.
International remittances to India are the highest in the world, worth $25
billion a year and growing at 25% annually. It is one of the fastest-growing
markets in the world, with the Persian Gulf region one of the major
contributors.
Recently, Prime Minister Manmohan Singh said Indians abroad are the backbone of
country's economy and that "their welfare is in the country's interest".
A JPMorgan report has said that the Indian diaspora can be a "powerful
catalyst" in helping India realize its aspiration of 10% annual GDP growth.
According to the US Census, it is the Indian-Americans (numbering close to 2
million) who have moved ahead as the most vibrant Asian minority in the US,
garnering the highest levels of income, education and job status.
Indians overseas, of course, continue to be in the news.
NRI steel tycoon Lakshmi Mittal has earned a staggering 4.1 billion pounds
($8.2 billion) during the past year and retained his position as the richest
person in Britain in 2007 with a wealth worth 19 billion pounds.
Knight Frank, one of Britain's biggest real-estate agents, released a report
recently called "Brics & Mortar: International Project Marketing 2007",
which said Indians are keen on places in central London such as Grosvenor
Square, Kensington Palace Gardens and Park Lane. The report added that
mid-price residences, costing between 400,000 and 700,000 pounds, are most
popular.
However, there are warning signs as well.
Last week global ratings agency Moody's warned about an overheating Indian
economy, citing higher-than-acceptable inflation, a growing merchandise trade
deficit, still-high rates of domestic credit growth, and rapid rupee
appreciation mainly due to strong capital-account inflows.
"Such trends are neither transitory, coincidental nor independent from one
another; rather, they are the result of a structural shortfall in the
absorptive capacity of the economy," Moody's vice president Kristin Lindow
said.
Moody's projects that a stronger supply-side policy response will sustain firm
medium-term growth accompanied by less risk of overheating.
Excess demand combined with supply-side constraints due to stagnant
agricultural growth and infrastructure bottlenecks have resulted in inflation
climbing to a new two-year high, with vegetable prices, especially onions,
surging sharply across the country.
It looks as if the demand pressures are only going to rise. Foreign direct
investment in the country has jumped nearly threefold to $15 billion in 2006-07
as the world's second-fastest-growing economy continues to lure global
investors.
Reformed real-estate investment laws for NRIs and foreign investors have
provided the fillip to catapult the Indian real-estate market toward $50
billion by 2010.
India's foreign-exchange reserves crossed $200 billion for the first time on
April 6, as per the data released by the apex bank, the Reserve Bank of India.
Seventeen years ago, India's forex reserves were barely $1 billion. The
reserves at the end of December 2003 totaled $100 billion.
The World Bank's Global Economic Prospects for 2006 reported that India for the
first time overtook China as the nation whose workforce remits the highest
amounts, an indication that Indians have emerged as the top "alien" workforce.
According to industry figures, the country's top five software firms, TCS,
Infosys, Wipro, Satyam and HCL Technologies, alone added more than 23,000
employees to their payrolls in the last quarter of 2006. This year they are
expected to hire 100,000 more.
Indian retail is coming of age and set to generate $430 billion from the
current $328 billion with the entry of big players such as Bharti-Wal-Mart and
Reliance and some other foreign players, says a report by a leading industry
lobby, the Federation of India Chambers of Commerce and Industry.
According to the report, more than $30 billion of investment is likely to be
made in the next five to seven years. This exponential growth is expected to
generate 18 million jobs, thereby becoming the second-largest
employment-generating sector after agriculture.
Siddharth Srivastava is a New Delhi-based journalist.
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