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?India bubble may burst?

Even before the euphoria over the latest growth statistics has settled down, the UK-based Economist group has struck a strident note of caution saying the exuberance was marked by a certain degree of irrationality and some Indian markets - property as well as shares - may pop.

india Updated: Jun 02, 2006 05:04 IST

Even before the euphoria over the latest growth statistics has settled down, the UK-based Economist group has struck a strident note of caution saying the exuberance was marked by a certain degree of irrationality and some Indian markets - property as well as shares - may pop.

In the forthcoming “A survey of business in India”, The Economist identified poor infrastructure, jobless manufacturing boom and red-tape as the key factors that could upset the growth applecart.

“Indian manufacturing is booming, but it won’t create huge number of jobs. Successful manufacturers have become successful because of capital intensive automation. In such a situation, the biggest threat to India’s growth ambitions are from social factors like underemployment,” Simon Long, who has written and compiled the report, told HT.

Even as Long acknowledged that “this is India’s moment”, he sounded a caveat stating that there was a “degree of hype and overselling about India overseas”.

“At the world economic forum (WEF) in Davos, in January, the confederation of Indian industry (CII) led a highly successful national branding campaign,” said the survey.

Despite manufacturing’s remarkable success, the number of jobs in the organised sector has hardly changed since 1991, at just about 6 million - almost three times less than that of China.

What is more worrying is that some parts of the country deter investment because of bad governance. “Some 60 per cent of the increase in India’s population between now and 2050 - the demographic dividend that is raising such big hopes - will come up in UP and three other northern states, with rotten infrastructure, education systems and mostly, governments,” said the survey.

Besides, the survey termed the existing indirect tax system as a “disincentive to investment”, eroding the competitiveness of Indian industry vis-à-vis China.

“India’s cascading import duties, excises, sales taxes and octroi accounted for nearly one-half of a price disadvantage of roughly 30 per cent suffered by manufacturers compared with their Chinese counterparts,” it said.

The survey was bullish on the prospects of the Indian economy, but said the government has to step up investments in infrastructure, health and education to ensure constant flow of skilled workforce as the industry was facing a shortage. The other side of the labour problem was a shortage of qualified and experienced talent. “Across industry, the lament is now the same, it is hard to find qualified people and hard to retain them,” the survey said.

Long also took potshots at the government on the recent ‘quota’ controversy. “It is actually ill-thought out optimism It (reservation) bad in two ways. It gives an impression of a backward and inward looking India preoccupied with caste,” he said.