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Jul 15, 2003
Gathering pace

Two recent events concerning the International Monetary Fund [IMF] enthused Indians. First, was India’s debut as a lender with a $200 million contribution to the IMF. This was refreshing news for Indians tired of India branded an eternal borrower. The second was the appointment of Dr. Raghuram Rajan as the Chief Economist of IMF. Dr.Rajan however, promptly suggested that while becoming a lender is a fine thing for self image, India should not hesitate to borrow to spur growth.

Growth had indeed begun to happen to Indian industry after years of stagnation. Decisive evidence was beginning to come in. Over the last six months, non-oil imports have been growing. In April this year import growth touched 40%. The reason why this is not bad news is that it indicated industries are beginning to consume sophisticated inputs: most of the non-oil imports consist of machine tools, components and industry intermediates. For those worried about ‘manufactures’ being side-lined by ‘software’ growth, the cheering news is that old economy realms like cement, steel and infrastructure are now showing robust growth.

Credit advanced to industry is growing as well, thus confirming that industrial growth is increasing. Inflation shows just that small uptick --around 5% now-- indicating we hover well above stagflation. Bank credit rates continue to fall enabling Indian industry to be more competitive. Investments are expected to increase given these right conditions.

Manufactures are beginning to crowd the export basket until recently dominated by software. There is a steady stream of news that world auto-makers are looking to India for their components and parts: so much for China hounding India out. That India’s design and skills superiority are beginning to assert: not a week passes without a major MNC announcing that it is moving even sophisticated jobs to India. Exports therefore have been maintaining 10% month on month growth.

Exporters might wince at this news but the rupee is strengthening against the dollar making simple Indians step out a little more spiffily. After breaching the all time high of Rs 50 to a dollar a couple of years ago, the rupee now hovers around Rs 46.

A particularly good monsoon has increased hopes of agriculture and rural economy growing sturdily. Money in rural pockets has always driven Indian industry. There is keen expectation now of rising consumer demand.

Markets have accordingly perked up. Infosys surprised itself by exceeding its own sombre predictions and the markets --already in a steady bull run-- exulted. Soon after that, the Maruti IPO exploded confirming that there is enough money in the primary markets if the offer is exciting. The successful Maruti issue has spurred the divestment bandwagon again.

Thus we have a self-reinforcing pattern with trends beginning to inter-lock. India’s economy is once again leaving every doom-sayer dumbfounded. That is the peril of judging India in comparison with other economies. India will hasten at its own pace—as befits an elephant which has a mind of its own.

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