INDIAN ECONOMY Part-1

India depends, again, for the most part on domestic savings for capital formation. Yet foreign capital inflows do play a significant role in the Indian economy: it stimulates the stock market, reduces the cost of debt for large firms with access to global sources, feeds a veritable frenzy of entrepreneurship taking good advantage of venture capital and private equity and, in general, meets the gap between investment and domestic financial savings (a large part of domestic household savings are in a physical form and not available for investment by anyone other than the saver concerned). India’s fast growth attracts a lot of foreign capital. As significantly Indian industry’s outward investment, is also growing proportionately, with India for example, emerging as the second largest foreign investor in London.

India maintains control on foreign debt (total debt stock is roughly equal to total foreign currency assets), its debt service ratio is low (a healthy 5%), the share of short term debt in total debt is about 18%, even as the share of concessional debt in the total has come down by half to about 18% from the early years of the decade. So, foreign creditors have little reason to be concerned by the recent widening of India’s current account deficit, stubbornly below 2% of GDP and even negative in the early part of the decade. India also regulates foreign investment in some crucial sectors of the economy - banking, insurance, retail, the media, telecom, and so on. The historic record is that most such caps are gradually raised and finally abandoned, over time. Such caution has served India well and it is unlikely that India would be rushed off its feet by any foreign wooer of its domestic opportunities.
For quite some time, it was fashionable to see India as a nation specialising in high-end services, particularly those related to information technology. No more. There is a new confidence in Indian manufacturing - only about 15% of outward investment from India are related to information technology. The world’s lowest cost car was conceptualised, engineered and manufactured in India, not any everywhere else. So, while services still grow faster than industry and account for about 54% of the output, manufacturing is getting only better - in volume and in sophistication.
Like any other fast developing major economy, India has to further accelerate its growth rate while being conscious of environmental aspect. India’s carbon footprint is small, per capita. The country has also committed to reduce the emission intensity of its growth - units of emissions per unit of additional output - by more than a fifth over the next one and a half decades. Green energy, green buildings, green habitats, greater energy efficient factories, offices and commercial places - these are daunting challenges and, simultaneously, goldmines of opportunity for high-tech firms around the world.
As India grows in size and clout, it will inevitably have an impact on the correlation of forces in the world. While India has no aggressive designs on foreign lands, it is inevitable that India’s defence forces should become stronger and more sophisticated. Larger procurement of advanced equipment leads on to offsets, joint ventures, domestic manufacture and eventually, India-based research and development, drawing on the tens of thousands of engineers who come out of India’s colleges every year, the best among them being world class.
Visitors to India are astounded at the manner in which the physical landscape keeps changing, from one visit to the next. The change that is even more striking than the new airports, roads, metro rail and high-rises that keep getting added is the new mood of optimism that India’s young people, the largest pool of youth in the world, have about themselves and the future.