Batting for India

Sizzling growth is assured, but with more reforms, say reports.

Last fortnight, even as foreign institutional investors were nervously waffling at the door, wondering whether to enter or not, there were two reaffirmations of the India growth story, if ever that was needed. Lehman Brothers, the US based financial powerhouse, predicts India could grow annually by 10 per cent or more over the coming decade. The important caveat though was “with the right reforms.”

The Lehman report titled “India: Everything to Play For” believes that India’s growth and structural reforms have started to interact dynamically in India. With consumption, exports and investment feeding off one another, improving fiscal situation coupled with strong capital inflows provide enough headroom for increased infrastructure spends.

“India’s rapid economic growth bears all the hallmarks of the economic take-off that took place in other Asian economies in the previous decades, such as China and South Korea,” says John Llewellyn, Managing Director and senior policy advisor, Lehman Brothers.

In a separate report, The Netherlands-based Rabobank does some scenario studies and concludes that India is on its way to reclaiming the role it played in much of the world history. The best case scenario here again predicts the 10-year average structural growth rate to be 10 per cent. “For this scenario to materialise, however, India has to create a virtuous circle in which most of the bottlenecks are successfully addressed,” the Rabo report points out.

Both the reports cite some common structural challenges that need to be tackled on a priority basis— reforms in financial sector and in the labour market institutions, improving physical infrastructure and enhancing delivery of public services be that education or health. Given these constraints and the ability of the Indian system to deal comprehensively with them, Rabobank has put forth the case of a slight cooling down of structural growth to 8 per cent as the most probable scenario with a 45 per cent chance of it happening. “If the government indeed manages more structural reform than it anticipates, its fear of overheating may prove ungrounded. Then, the economy’s bottlenecks will not restrain growth as much, and higher growth rates appear sustainable,” Rabobank observes.

The same sentiment is echoed by Lehman’s Managing Director and senior political analyst Alastair Newton, who says, “India has had a number of years of reforms and their effect is visible now, but it will remain visible only if reforms were to continue.”

But as Newton adds, India is facing an important inflexion point. It would be a great pity if for some reasons that projected upward path is not taken.