Economy & Finance

Great times

India seems to have entered a golden phase of growth. In the second quarter of 2006, the G.D.P. (gross domestic product) has grown at 9.2%, which is one of the highest growth rates ever achieved. It is expected that for the fiscal year 2006-07, the growth will be around 9%, which is more than expected at the beginning of the fiscal year. Service and manufacturing sectors are growing in double digits. The traditional sectors such as agriculture and mining are growing at slower speed but as their percentage in the G.D.P. has declined over the years, they have not affected growth rate much.

Indian economy is fast emerging. It was the liberalization of Indian economy, which germinated the seed of change 15 years back and since then there was no looking back. Numbers of people and political parties have tried to claim that they were instrumental to this growth. I feel that the maximum credit goes to the people of India. They, by their sheer perseverance, intelligence and endurance have overcome every difficulty, which was created by the bureaucracy and red tape. The endurance of Indians is simply phenomenal. They have proved again and again that given a right climate, they can build a great reputation globally.

In the last five years, the perception about India and Indians has changed globally. The country has outshined because of its high economic growth rate and great potential. Indians have hit the global list of the rich and famous and have been acclaimed as one of the most enterprising people. With their global ambitions, many Indians have gained prominence and visibility all over the world. Being Indian has become a mark of respect. I feel that the best is yet to come. India has started financial reforms and they should be kept on. Now people may not need the Government help to keep on the growth rate. The only thing the government needs to do is to abstain from putting spanner in the moving wheel. Now Government needs to concentrate on social reforms. The labour laws need overdue changes. Exit from a business should be made easier if not made as easy as entry. If the economy grows, masses will not be left behind. With the global failure of the pure communist principles in the last couple of decades, it has been proved that private enterprises can create wealth at much faster rate than a government can. The motivation of creating wealth for oneself has definite spillover benefits for lot of other people. Encouragement to well directed capitalism can make the world wonderful. People do not work just for other. Let people work out for themselves and that will automatically work for others.

Unfortunately, wealth is simply not created from hard work. Hard work is one of the supporting factors but creation of wealth needs intelligence, perseverance and endurance. It needs compelling urge to be successful. That urge needs to be fired in the minds of our millions of Indian who constitutes more than 20% of the world population and the wonderful results will be visible not only in India; but across the globe.

We are a country of great history. We have been the most admired people 5000 years back. The bad patch is over. We are back on the track. India and Indians will contribute phenomenally to the well being of the world in this century. India will be one of the biggest economic and intellectual powers of the world. We are likely to see one of the golden eras for India and Indian. It will happen in spite of all the difficulties and negative factors, which are around. This growth phase is unstoppable at least for the time being.

Currently, the major global economies are doing reasonably well. Though US and Japan have slowed down a bit, Europe and specially Germany are doing well. China has kept its growth momentum and major Asian countries are gearing up well. More pronounced slow down in US economy is expected in 2007; but that may not affect the whole world as it was expected earlier. If India and China continue to grow at high speed, it will bridge the deficit created by US and the world may continue its economic growth at reasonable speed.

Energy prices will play a crucial role in determining the growth rate; but nevertheless the growth will be on for some more years to come. The developing countries, which have younger population, will contribute substantially to the economic growth by way of toil and the developed countries will provide the needed capital. More and more countries are understanding and admiring the need of economic reforms for the long-term benefit of their citizens and here on, the world may have more liberal economic laws and enforcement. This will add to flexible movement of capital, goods and services; and will improve the standard of living of the whole world.

The major stock markets across the globe seem to be on fire and Indian stock market is not an exception. However, many a markets are reaching to such high levels that they are no more cheap. The future rallies of stock markets will come more from economic progress and not by filling the gaps created by under valuation of certain businesses.

In spite of expectation of reaction in major markets, the growth trend is unabated. The correction will come; but nobody knows when. In the current phenomena, I feel that investors may book partial profits; but may not reduce their involvement with equities. Savings may be partially invested in equities or related instruments and partially in fixed income earning securities. Though there may be short-term corrections in Indian stock markets, over a horizon of 3 to 5 years Indian equities should give 12% to 15% annualized returns.

Inflation is creeping up and so is the interest rate. Investments in bonds, fixed deposits and fixed maturity plans of mutual funds have become attractive. Conservative investors should invest at least 50% of their savings in such investments.

Property markets are not reacting though their speed of growth has tapered off. As the economy is doing well and people have money in their hands, the property market may not react as expected earlier. It may grow gradually for some more time to come. Investment in prime immovable properties may be advisable considering the high rentals they are able to fetch.