http://www.businessweek.com/globalbiz/cont...3900_page_2.htm

India's Economy Hits the Wall

Growth is slipping, stocks are down 40%, and foreign stock market investors are fleeing. Businessmen blame the ruling coalition for failing to make reforms

by Manjeet Kripalani



Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment is fleeing, the rupee is falling, and the stock market is down over 40% from the year's highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. "India has gone from hero to zero in six months," says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai. Many in India worry that the country's hard-earned investment-grade rating will soon be lost and that the gilded growth story has come to an end.

Global circumstances—soaring oil prices and the subprime crisis that dried up the flow of foreign funds—are certainly to blame. But so is New Delhi. Much of the crisis India faces today could have been avoided by skillful planning. India imports 75% of its oil to meet demand, which have grown exponentially as its economy expands. The government also subsidizes 60% of the price of such fuels as diesel. In 2007, when inflation was a low 3%, economists such as Standard & Poor's Subir Gokarn urged New Delhi to start cutting subsidies. Instead, the populist ruling Congress government spent $25 billion on waiving loans made to farmers and hiking bureaucrats' salaries.

Botched Opportunities
Now those expenditures, plus an additional $25 billion on upcoming fertilizer subsidies, is adding $100 billion a year—or 10% of India's gross domestic product, or equivalent to the country's entire collection of income taxes—to the national bill. This at a time when India needs urgently to spend $500 billion on new infrastructure and more on upgrading education and health-care facilities. The government's official debt, which dropped below 6% of gross domestic product last year, will now be closer to 10% this year. "Starting last year, the government missed key opportunities" to fix the economy, says Gokarn. In fact, he adds, "there has been no significant reform done at all in the past four years"—the time the Congress coalition has been in power.

Even the most bullish on India are hard-pressed to recall any significant economic reforms made in the recent past. A plan to build 30 Special Economic Zones is virtually suspended because New Delhi has not sorted out how to acquire the necessary land, a major issue in both urban and rural India, without a major social and political upheaval. Agriculture, distorted by fertilizer subsidies and technologically laggard, is woefully unproductive. Simple and nonpolitical reforms, like strengthening the legal system and adding more judges to the courtrooms, have been ignored.

A June 16 report by Goldman Sachs' (GS) Jim O'Neill and Tushar Poddar, Ten Things for India to Achieve Its 2050 Potential, is a grim reminder that India has fallen to the bottom of the four BRIC nations (Brazil, Russia, India, and China) in its growth scores, due largely to government inertia. The report states that India's rice yields are a third those of China and half of Vietnam's. While 60% of the country's labor force is employed in agriculture, farming contributes less than 1% to overall growth. The report urges India to improve governance, raise educational achievement, and control inflation. It also advises reining in profligate expenditures, liberalizing its financial markets, increasing agricultural productivity, and improving infrastructure, the environment, and energy use. "The will to implement all these needs leadership," points out Poddar.

"We have a government in New Delhi with the best brains, the dream team," he says, referring to Oxford-educated Prime Minister Manmohan Singh and Harvard-educated Finance Minister P. Chidambaram. "If they don't deliver, then what?"

Disillusioned Business
More worried than most are India's businessmen, who have turned in stellar performances with their investment and entrepreneurial drive and begun to look like multinational players. For them, there's plenty at stake. But lack of infrastructure, from new ports to roads, along with an undeveloped corporate bond market and high prices for real estate, commodities, and talent, are causing them to hit "choke points and structural impediments all over. We will lose years," says Bombay investor Chetan Parikh of of Jeetay Investments.

Sanjay Kirloskar, chief executive of Kirloskar Brothers (KRBR.BO), a premier $470 million maker of water pumps, already has $100 million in overseas contracts. Yet few infrastructure contracts have come from New Delhi. Kirloskar had hoped to be part of a grand project linking India's rivers, but those plans have been on hold for four years. "The infrastructure growth we had hoped for has not come about," he says. "Instead, we will now expand overseas more than in India."

Such constraints on growth at home will have an impact. Corporate earnings growth is likely to dip, says Merrill Lynch's Holland, who now predicts just 10% growth, instead of the previous year's 20%. That slowdown makes it less attractive for foreigners to invest in India's stock market. Already this year, foreigners have taken $5.5 billion out of the market, compared with the $19 billion they invested last year. Gagan Banga, chief executive of India Bulls Financial Services, an emerging finance and real estate giant, points admiringly to China's ability to maintain its growth momentum for a decade, while India's has not been able to hold up for even three years. "Serious companies are going to grow at a much slower pace, and some may even de-grow this year," he says. Unless major policy decisions are made by New Delhi immediately to keep the economy on the growth path, he says, "India will slow down even further."

New Delhi defends its four year reign in India. "We've had 9% growth for four years in a row," says Sanjaya Baru, media adviser to Prime Minister Singh. "That is unprecedented." He attributes it to the increasing rate of investment, up from 28% of GDP to 35% currently, "close to most ASEAN economies," though he admits that a large part is from the private sector. "Yes, there is a fiscal problem, but there's a price to be paid for coalition politics," adds Baru. So having growth drop "from 9% to 7% is not grim."

Social Backlash?
Chetan Modi, head of Moody's India, says the increasingly high cost of doing business in India may force global investors who had set up base in India—especially financial-services players—to move to more affordable and efficient hubs, such as Singapore and Hong Kong. If the economy slows and inflation continues to accelerate, says Sherman Chan, economist at Moody's Economy.com, "social unrest is possible."

In fact, India is becoming a dangerous social cauldron. The wealth harvested by the reforms of previous governments has made itself evident in the luxury cars and apartments in India's big cities, leaving much of India full of aspirations but few means to achieve them. There is a severe shortage of colleges, yet a plan to build 1,500 universities gathers dust. The Communists in the ruling coalition are against both globalization and industrialization, so without new factories being built, employment growth has been almost stagnant, rising to just 2%—a disappointing rate in a country where an estimated 14 million youths enter the workforce every year, but just 1 million get jobs in the regulated, above-ground economy.

Meanwhile, few expect any bold moves New Delhi, especially with national elections due in 2009 and five important state elections scheduled before the end of this year. Thus far, the ruling Congress party's record has been poor; it has lost almost every state election this year and is likely to lose all five of the upcoming ones.

The big hope for a return to the course of reform in India, businessmen hope, will be a new government in New Delhi next year. The gravest danger is that India's messy coalition politics will bring into power another indecisive alliance that will keep the country in policy limbo for another five years. If so, says S&P's Gokarn, it's a meltdown scenario: growth slipping below 6.5%, accelerating the chances of India reverting to its 1991 status when it was plunged into a balance-of-payments crisis.

Lets concentrate on our own before looking at others.

This is an interesting article that could have implication in South Asia and its got nothing to do with "Lets concentrate on our own before looking at others." Thats just common sense even grade 5 understands.

its a downward economic spiral all over da world...

7% growth for this year is not bad considering that there is a major downturn in most of the industrialised world. Even China will grow a little slower as a result.

7% growth for an economy the size of theirs (we're talking the raw GDP) is still massive.

7% growth for a $trillon dollar GDP = $70 BILLION striaght add on to next years GDP.

7% compared to 1-2% growth in the rich western world.

BUT YES WAY BELOW INDIA minimum requirement of 9% growth from now on.

Theres a global recssion even the fast emerging economies will slow down including china & brazil which is only growing at 5%

Problem with India is that its economy is artificial. It has had massive investment from USA and UK so when their economy falls then India's economy is hurt. Even with so much help India can't get things right, how pitiful. Guess its going to mean more prostitutes in the streets of Mumbai and Calcutta, hence more aids and more mortality.

So insightful. You must be an economist. You must also know the number of new prostitutes that hit the streets for every basis point drop in GDP. Kindly enlighten.

considering the fact that india has a population of 1 billion+, the size of their GDP is no big deal.

Probably we could have cushioned a lotta things inspite of the Global economy'z bleeding!
We have got a breed of plug uglies called "Politicians".
Selfish politicians who get a high when they are in charge of the government! So they just initiate all kinda wasteful schemes!
When Oil is threatening to breach 150$ would any sane person waive off loans worth 75000 Crore(INR)?

Even Pakistan is ahead in per capita terms. They might only have 300-400 million benefitting from the economic boom, but they sure know how to retain a positive image in the eyes of the west. It's really sickening eveytime India is clubbed together with China when world leaders talk about rising oil and food prices. India has a decade to go before it can be a shadow of what China is today. A huge advantage they have is the multi billion dollar Indian companies ready to invest and keep their economy going. This year's Forbes magazine has 4 Indians amongst the top 10 richest list.

Coz thats the only way to make your 'poor, starving, crushed under debt, unable to feed his family' farmer stop committing suicides. When would you middle class cyber coolies call center yuppies stop being delusional about your country's reality?

accordong to the late Robert Friedman from The Nation, who wrote a detailed article on protitution in india in 1996, there were about 10 million prostitutes in india at that time. the protitutes in Mumbai were earning around $10 per day. assuming that the number of prostitutes in india has not changed in the last 12 years (to make indians happy), and taking the earnings of mumbai as an average, 10 million prostitutes earning $10 per day for 365 days a year means that the income from the prostitution industry is about $ 36.5 billion per year. now i dont knw the value of the indian spending multiplier but normally its around 4. assuming that its 4, means that the indian prostitution industry's contribution to the indian GDP is about $ 150 billion. in other words, prostitution accounts for about 15% of the indian GDP.

LOLZ!!


maybe its not affordable in other countries

maybe there is no other country where 10 million women are either forced into prostitution or are so poor that they dont have any other source of income.

Look! You deliberately wanted to degrade and i replied in kind! I can give a more fitting reply! but my decency stops me from doing the same, coz I dont want to lower my standards! We can discuss on the topic! As you see, i gave a normal reply! Reply in kind if you can!

if you cant face the facts and accept the truth, its not my problem. what i wrote in my first post was fact based on actual statistics, and what i wrote in the second post was another fact of indian society. if the truth hurts you then its the fault of your own society.

There is zero prostitution in Pakistan?
Is that wat you r implying?

fortunately, i dont have a pathetic mentality like you indians. there is prostitution in Pakistan, although not on the scale as in india, but yes it exists and it is increasing. we Pakistanis are not delluded like you guys that we dont accept the reality. this thread was about the indian economy, and i just showed the contribution of the prostitution industry to the indian economy.

Watever!

How the Hell did a post re the so caled struggling indian economy turn into a debate about prostitutes ??????????

Wat is wrong with you people.

Some guy has started a post suggesting that india is about to hit a brick wall their economic growth come to a slow down even collapse.

" ITS SHOULD BE RELABELLED " WE WISH INDIAN ECONOMY WUD COLLAPSE

Cause it makes some pakistanis sick to the stomach to see india labelled as a giant economy or to be invited to G8 summit along with china.

indi is the sh**iest country in the world. My girlfriends sister went on holiday and all the hindian scum seeing white flesh went absolutly ape, they were harassed by the uglies. The girl actually slapped a few dudes out as they wouldnt take no for an answer. The whole thing is hype and a mirage. She said never again the smell, flies, rampant beggars and poverty, also poor hygiene, they had upset tummys the whole time. Even the bhindian docs have names for it such as "delhi belly" & "bangalore bum".

My lass spoke up has been to Islamabad Wah & Karachi, said Pak is cool and much better. Just goes to show, she definatly put a smile on my face.

There is an old saying, "The bigger they are, the harder they fall".......... Soviet Union is one example.

lol, Skully , perhaps you should replace the Indian prime minister as the chief pimp, with extra income their finance minister will come with joy.

Lets invest together in Indian brothels and help them make a living. I am surprised with Indians charging $10 a day that Heera Mandi has survived so long. Now the jigsaw fits why our politicians want to increase cross border migration!

10 million prostitutes? Seems to high. That would mean 1 out of every 50 Indian women is in the sex slave.

You must be commended for such a factual statement. Best way to find out is offer 50 indian women money and see how many accept your offer! It might even be worse than you think.

LOL, perhaps the Indian should try and double the numbers of prostitute to in order to increase their economic output. You know 20 million instead of 10 so their economic contribution will be 300 billion to the GNP. This could be a gold mine for economic growth, with no need for further investment in education, infrastructure or technology.

Bingo...

Well thats exactly what they are doing.

But this time they are killing 2 birds with one stone. Now in India CHILD SEX TOURISM is on the rise. So basically they get tourist into their countries and than extra income from CHILD PROSTITUTION...

LMAO....

You are right about Indian obsession over White flesh. They will go absolutely ape and worship girls with fair skin.

Look at this commercial at white worshipping :

http://www.youtube.com/watch?v=_lZWtAxjmts

Grow up Kids! Even in a discussion of economy all you guys can think about is wat s in your Pants!
Female members of PDF would be disgusted on seeing this thread!

OMG! the cream not only turned her skin white but also made her hair blonde!

Well, last time i looked, it was Ball Thakraey!

Yaar, don't give them any bright ideas. Schools in Mumbai and Delhi might be turned into brothels. Can you just imagine how they will be graded by the Sicks. India is truly progressive! An economy based on exploitation of the masses for the pleasures of the few.

you need a check up with your psychiatrist to have such an attitude towards kids, irrespective of their nationality!!! So do most of the kids around here !
Dint you see my reply?
I asked you to grow up!

and i think the sub-forum is Social interaction and the way you ppl reply is anything but social!!!

You shouldn't criticise us but support us in our condemnation of exploitation and abuse of humans. What use is a good economy if it leaves a legacy of destroyed souls? What use is a good economy if people don't smile and family values are trampled by materialistic greed? What use is a good economy where millions of children have lost a childhood and hidden behind GNP and GDPs? And all because of false ambition and a society heading for moral ablyss. Rahulj you need to become active in fighting for the rights of your women and children rather than supporting the status quo. Your Bhagwan will smile upon you even if you can save one child or woman from exploitation.

Dude sex industry it self is disgusting and when it becomes CHILD SEX industry than all limits have been crossed. Now its a statement of FACT that many ppl go to India for CHILD SEX, hence it is known as CHILD SEX TOURISM.

no 1 here is making mockery of it, its you guys who are blind in their toughts that they fail to recognise what is really up with your society.

So what is the total contribution of SEX industry in you GDP, i doubt it is eva counted but if it is as big as 15% i wonder what kind of nation you guys are turning into.

Yes ppl! That is a thing to be ashamed and it does exist in most of the south Asian countries! But the responses which i recieve in this thread does not show the emotions which you claim that you have/or claim to show!
Rather make a mockery of the situation as if the ppl enjoy doing it!!
Its not as if the country is proud of this!
and the sorry situation is that even school kids are viewed with a dirty perception as if ..................
every country have their own problems!!

This is a public forum and people are here to debate and discuss! The topic was Indian Economy!
I wonder how this could be turned into a topic on Prostitution and I see that you guys are giving justifications for the same

Why is this happening? Is this the object of discussion? Try to have a civilized discussion without jumping tracks! If you guys are interested in sane discussion


@ Saleem

"Yaar, don't give them any bright ideas. Schools in Mumbai and Delhi might be turned into brothels. Can you just imagine how they will be graded by the Sicks. India is truly progressive! An economy based on exploitation of the masses for the pleasures of the few."

Is this wat you call as condemnation???
Is this the way you will condemn if there is prostitution in your town or village or city????

dude, the sex indusrty comprises of a large portion of the indian GDP, its a fact. so no one is going off topic here, we are just discussing one major sector of the indian economy.

The size of their GDP is one hell of a big deal, skull.

GDP per capita is different, but when you're talking about a $3trillion economy (PPP) seeing 7% growth (on a bad year) it's no small matter.

its no big deal at all. even if Sudan had a population of 1 billion their GDP would be close to india's. if you look at the actual figures then the GDP of countries like Singapore, Malaysia, Taiwan, S. Korea etc... are way less than india but it would be insane to even think that india is economically stronger than those countries.

now coming to your statement about GDP per capita, well, its not a different thing, its the most important thing. "per capita" means "per person", and when we talk about GDP per capita, those "persons" are the people living the particular country. and the people contribute to most of a country's GDP. A GDP is calculated by the following formula (if you use expenditure approach):

GDP = C + Ig + G + Xn

where,

C = Household consumption expenditure
Ig = Gross Investment
G = Govt expenditure
Xn = Net exports

Now the largest contribution to any country's GDP comes from the first component i.e. the household or personal consumption expenditure. this is the money which the people living in a country spend on the consumption of goods and services. for example if i spend a dollar to buy bread, it will be added to the GDP as a Hosehold Consumption Expenditure. now if every citizen of india spends as little as 1000 indian rupees (USD 25) per month for his/her personal expenses, with a population of 1.13 billion, the Household Consumption Expenditure will be USD 340 billion! (in nominal terms, india's nominal GDP is USD 1 billion). now even after assuming that indians spend as little as USD 25 per month for their personal expenses an even after ignoring other economic effects such as the multiplier effect, we get such a high figure. if we assume on an average an indian spends USD 50 per months then the contribution to the GDP from the household expenses will be nearly USD 700 billion! that is the reason why economists dont comapre economies of countries in real terms, instead they use relative comparison i.e. comparison taking into account the population of countries. this shows the ground realities and also shows how much each person is contributing to the GDP of a country on an average.

Rahulj, u r a kind hearted person, a valuable member of this forum, we are used to hearing a lot of stories about night-shift misadventures in the Indian call centres, the situation is so bad that Hindu priests are dispatched regularly to these establishments to preach sanity and moral values, and now when you hear that this part of the world is seen in the same context as Thailand, Vietnam and Philipines, it is indeed disturbing. The long distance truckers were already a menace to society, where as now the inter-city transporters are having a field day.
One wonders what happened to India, once a land of rituals like Holi, Diwali, and Rakhi? these don't appear even in the movies now, and Bollywood is just as responsible for decaying the Indian society portraying that life is all song and dance and evey thing is "honky dory".
And the likes of Shiv-Sena, who even object to Indians celebrating Valentines day, seem totally oblivious to the "sex industry" label, and it wouldn't surprise me if these organisations turn out to be the footprint of the very beast you detest!!!!!!

If you really believe in what you write then I expect you to transform your words into action. Do something to prevent more victims and do something for the sufferers. If you really abhor prostitution then show it by deeds. But I know you won't since with Hindus prostitution is part of your religion. Because Indians keep belittling prostitution it has become a significant part of their economy. In fact your whole economy is disgusting and based on the blood and sweat of 700 million poor.

I am contributing in my own small way! donations and service to orphanages and old age homes from my small income
you deal with your own conscience whether whatever you have said about the people who are exploited and pushed to such a situation is with the utmost sincerity!

I'm guessing you're an economist. Well I'm following you loosely. Though again, my point isn't whether India is a strong economy or not; nor whether their people are living in poverty. It's simply that a 7% growth on a $3 trillion economy (i.e. $250 billion) is not something to be taken lightly? Or is it? (That last question wasn't sarcasm, I'm genuinely curious).

well, its not something we should lose sleep over.

you see the $3 trillion figure is in PPP terms, thats not the actual amount. the actual or nominal amount of the indian GDP is $1 trillion. and a GDP of $1 trillion doesnt means that indians or the indian govt have $1 trillion, it just means that during a particular year, economic activities of $1 trillion took place in the country. and the most significant economic activity is the money which people in a country spend on goods and services. the indian GDP seems so high just because there are over a billion people in india who have to spend money for their survival. so its not a big deal at all, people must spend minimum amount of money to survive, and the more people you have the more amount of total spendings and the more your GDP.

Its not about wat india is today. $1 trillion dollar GDP or $313 billion fOREX OR 400 million starving.

ITS MORE ABOUT where india is heading according to most global thinking.

That current GDP is barley top 10 IN THE WORLD in rank.

Per capita of under $900 dollars makes india very poor.

BUT based on current growth rates average at under 7% (below wat india ha been growing)

BY 2025 that GDP will over $3 trillion per capita $2000+ and india will be a TOP 5 economy. BY 2040 india will 3rd behind CHINA & USA.

THEY WILL BE COME A MONSTER country in terms of GDP polulation, fuel consumption , importing exporting & military power...

That headline of the the topic is slighlty exaggerated. i believe

With all due respect. 50 years ago, it was predicted that the Indian economy would have east-Asian style growth rates of around 8% a year till 2000. If this had happened then India by now would have overtaken the US to be the richest country in the world. We all know that this prediction has not turned out to be true.

Now while India is doing well, even in the last 10 years(the fastest sustained 10-year period of growth since Independence in 1947), the economy has grown at 7% a year on average. While commendable, this pales in comparison to the almost 10% per annum average GDP growth that China has achived in the last 3 decades. Much higher growth rate and over a much longer period of time. With a track-record like this, not many people scoff at the idea of China continuing double digit growth till 2025 at least.

Now it is great to see India is at last starting achieving some of it's true potential, we should be much more realistic about the state of India right now, and even by say 2025. In the year 2008, India is a "4th World" country. Save total basket cases like Afghanistan and Congo, it is among the poorest of the poorest. Even by 2025, with growth rates of 7-8%(someting it has only achieved on a sustained basis in the last decade), it will be only a "3rd World" country.

India seems to have turned the corner in the last 10 years, but it has a very long way to go. It certainly is no match for a true giant like China, whether that be economic or military.

India should try hard to make this around 50% of its GDP!!