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India?s growth is no illusion

For global CEO wannabes, an India stint in their CVs has become almost as important as a China stint.

india Updated: Jun 03, 2006 01:48 IST

For global CEO wannabes, an India stint in their CVs has become almost as important as a China stint. Indeed, an understanding of the two nations most likely to dominate the global economy in the first half of this century has become mandatory qualification. Figures released by the government on Wednesday, indicating that the economy, as represented by its gross domestic product (GDP) had grown by an astonishing 8.4 per cent in fiscal 2005-06, only reinforce this view. In fact, if the current momentum is sustained, India may well beat forecasts of becoming the world’s fourth largest economy by 2015.

In fact, the growth figures have stumped analysts this year itself. GDP growth is a good 0.3 per cent higher than even the revised estimate of 8.1 per cent for the year, released as late as February this year. A mere 0.3 per cent may not appear significant, but in an economy that is already $ 750 billion-plus in nominal terms, and close to $ 4 trillion in purchasing power parity terms (which calculates what a country’s currency buys in terms of goods and services and not what it is worth against another currency), it is a significant change of gears. This has been made possible largely by a huge upsurge in agricultural output, traditionally the backbone of the economy and one of its key drivers. Agricultural growth spurted to 3.9 per cent in 2005-06, from 0.7 per cent in the year-ago period. Manufacturing accelerated to 9 per cent, sustaining one of the longest stretches of growth recorded. Services, which now accounts for over half of India’s GDP, grew at an impressive 11.5 per cent. But the push factor undoubtedly came from agriculture. India is the world’s second largest agricultural producer. The sector, traditionally neglected in favour of manufacturing and services, has provided the clearest signal yet that investments in agricultural infrastructure will provide rich returns.

Too much should not be read into the Sensex’s slide on the very day the growth figures came out. Share prices are a reflection of a collective expectation of future share price movements and not a report card on the economy. True, the much-maligned FIIs moved $ 2 billion out of the markets in May —  but that represents only 20 per cent of what they’ve bought so far this year. Profit booking at such high levels was only to be expected. The India Growth Story is still firmly on track.