Why India will grow despite inflation
The reason I am very bullish on the Indian economy is threefold—Firstly, despite pressures from global commodity prices, Indian business is very inventive and innovative. Productivity improvement in Indian companies is very high. Secondly, we are getting very competitive. And I also see some macro economic reasons for higher growth in the future, the most important being changes in our indirect taxation.
By April 1, 2010, which is less than two years from now, we will have a single general sales tax (GST). To my mind, that will add one or two percentage points to India’s growth rate. Because, then, we will have only one indirect tax- there will be no tax on tax. Once you have a GST, evasion of indirect tax is almost impossible. So there will be a win-win situation.
The only loser will be the tax evader. The government revenues will rise. They will be able to reduce tax rates. Consumers will get lower prices. That will create higher demand for consumer goods. Manufacturing will grow- income taxes will grow. In China, the main growth impetus came in the nineties when they moved to value added tax.
Yes, I think there are effects of inflation and effects of global slowdown- it might affect our growth slightly, but there are other factors that will neutralize that. There will be certain sectors like automobiles, which will be affected more because of the fuel hike, and even the steel market may be affected. However, our businesses are growing despite some negative factors. Because, people have lost a lot of money in the stock market, there is over-pessimism right now, just like when they make a lot of money there is an excessive euphoria. In 2010-11, we will definitely have 10-11 per cent plus growth and before that I don’t expect the growth rate to go below 8 per cent
(As told to Saurabh Turakhia)