Hey man, we are the most privileged citizens of India to see our country metamorphose from developing stage to the developed stage and I feel that we will live to see India as developed nation by 2050. Prompt came the reply – Give me numbers boss. I dont see close to double digit growth as of now to continue till 2050. I knew this friend of mine with whom I entered into a healthy discussion was making some sense but the anxiety to be tagged as India the Developed Country was making me quite uncomfortable to accept the hard fact that we may not sustain the growth. He pushed me into research to check out the ground reality and find out whether my life time is long enough to see one of my cherished dreams for my nation to materialize. After the research work and numbers, I am back again to answer all the questions of my friend whose thoughts replicate many citizens of this country and whose dilemma is same as his Can we bridge the gap between developing India (Bharat) and developed India (India)?

India is growing, that is for sure and it is not hard to cite numbers proving this fact. Maintain a growth rate of 9% and pull down inflation to as low as 4% from 7% is certainly not an easy task. We had performed outstandingly in the financial year that passed by and still counting for the growth to continue. The so called numbers asked by my friend, speaks in volume about the growth story of India.

Real GDP grew at 9.4% in FY 07 and it is second only to 10.5% growth registered in FY 89. This is not a one time achievement and we are growing at an average rate of 8% plus since last four years.
Index of Industrial Production (IIP) growth at 11.5% in FY 07 was best since 13.05% in FY 96. Monthly IIP growth of 15% in November 06 was best in this decade.
Manufacturing was the key driver of IIP and annual growth of 12.5% was best since 14.1% in FY 96. Once again, November 06 growth of 17.1% was highest in the decade.
Corporate top line and bottom line posted an average growth of 15.76% & 37.24% since 2003. Manufacturing bottom line grew 45% plus in four out of five recent years.
PAT margin grew almost four fold to 7.9% in FY 07 from 1.9% in FY02.
Overall tax collection has been growing at over 15% since 2003 and it was its best ever at over 25% in FY07.Growth in corporate tax collection was the key driver which grew over 22% since 2003 and it was 45% in FY 07.The contribution of Corporate Tax has increased to over 34% in FY07 from 22% in 2003 and just 15% in FY97.
Fiscal discipline is at its best ever as the actual fiscal and revenue deficit are much lower than the budgeted deficit for the first time for four consecutive years. Primary deficit has been totally wiped out and turned surplus in FY 07.
The government and Central bank displayed firm determination in controlling inflation without disturbing the fiscal harmony. There were strong fiscal and monetary efforts to control inflation, which peaked the year at 7% as of last week of January 07, and it is now contained below 4.5%.
RBI acted wittingly and refrained from mopping additional foreign exchange reserve for fear of increasing local money supply. Over 90% of the years foreign exchange reserve accretion was in the month of March 06 but it was less than 10% in March 07.
In FY 07 FDI inflow at $17.7bn was 1.3 times higher than previous year at $7.7bn and over 8 times of 2000 at $2.1bn.
In four months of year 2007, PE investment at$3.5bn is over 50% of total inflow in 2006.
FII investment at $3.3bn so far in FY08 is already 50% of $6.7bn for the whole of FY 07.

The most remarkable achievement for the past financial year is the outstanding growth in manufacturing sector. In the late 90s, we had been lagging behind in manufacturing and, service industry took its toll over it .In the past few years, we have marginally achieved a target growth of 12% in manufacturing sector. For a country like India where 11% of the work force is dependent on manufacturing sector, I feel it is essential that manufacturing should grow at the projected rate. As manufacturing is a force multiplier, for every rupee that India invests in manufacturing, GDP increases by Rs 4. Secondly, as it is a labor intensive sector, it takes due care of improving the employment ratio.

India Inc is not happy with the finance minister, reason being, he wants the growth to be all inclusive by taking off exemptions available to corporate India and passing the buck to the rural sector. I support the views of Mr. Narayan Murthy who is in favor of removing exemptions especially for big corporate houses as the time has come when India Inc can share the burden of common masses. Furthermore, the foul cry of corporate India is unjustified as the top line and bottom line is swelling relentlessly for them. Some respite is in waiting for corporate India as two days back finance minister hinted at tax rate cut after the release of first quarter monetary policy review by RBI.

Finance minister is a happy person as he had been able to fill the coffers of government through tax revenue. Tax GDP ratio of the country is improving and there has been a significant growth in it which shows that compliance is getting better. This also shows that we are marching towards a state of transparent economy which is very essential for the sound development of any country. Corporate India deserves big thanks for this as the contribution of corporate tax has increased double fold in a decade to contribute 34% in the total tax revenue.

Strengthening rupee and soaring inflation has posed the biggest challenge for RBI Governor, Mr. Y V Reddy and it was a real testing time for him. Full marks to him as I feel that he handled the issues in the best possible way. All economics comes to a standstill when you have to maintain the GDP growth, control inflation which is going through the roof and also manage the appreciation of currency. As stated above, RBI has acted in the right direction by refraining from any further purchase of foreign exchange to control release of rupee in the market which would aggravate inflation. I agree that interest rate has increased unexpectedly but in order to curb the inflation by controlling supply of money in the market, such rise was inevitable. When an economy grows (be it China or America), inflation is automatically supposed to soar. The acumen lies in maintaining a balance between inflation and growth and that was done quite impressively. For the first time we are on a surplus front on primary deficit (Primary deficit – Interest Expenditure = Fiscal Deficit) and our budget and revenue deficit are also well within the budgets. This is an incredible achievement as compared to the past when we were overloaded with external loans due to expenditures made far away from budget.

Foreign Direct Investment (FDI), Foreign Institutional Investors (FII) and Private Equity (PE) are pouring in India like never before. I hope they are doing so after having a close look at numbers. The penetration and potential of Indian economy make India a hot destination for all foreign investors. As the new areas like retail, aviation, banking, telecommunications, insurance are opening up due to liberalization by government, more and more companies are landing in India. They are even ready to build infrastructure in India in order to operate in one of the fastest growing economy of the world. Active participation of FDI, FII and Private equity (PE) in India makes the target of $320bn towards infrastructure set in 11th plan quite feasible and achievable.

I hope by now my friend has pretty good chunk of numbers to substantiate my views regarding a developed India by 2050. But this is not the end of story and there are some pitfalls too. I dont want to live in an illusion that I will survive to see a developed India and this made me ponder into grey areas which may make my dream hollow. Lets have a close look at some bad news as we already had enough of good news and I would be unfair to my friend if I dont discuss the grey areas.

Agriculture grew at the rate of 2.7% for the FY 07 which is quite far from a budget of 4%.
Rupee is trading at all time high and it strengthened 16% in last ten months.
Interest rate has gone up sharply. Due to this, constructions projects are hit badly and there is a remarkable drop of 20% to 30% in housing loans since January 2007.
Trade deficit is at its worse.

The slow growth in agriculture sector is one of the pitfall in our economy and if it is not given due address it will soon turn out to be the biggest trench. Nearly 60% of the work force depends on agriculture and it contributes just 16% to our GDP. There is a simple arithmetic that a smaller number (16% of GDP) is serving a larger number (60% workforce) which is responsible for the uneven growth. For the effect of GDP growth to spread out among the rural areas, it is very essential that growth is all inclusive. We need to create more non farm and agriculture jobs in the rural area at an aggressive rate or the difference between the urban and rural population will become more prominent to even it out.

Interest rates and appreciation in rupee go together. Simple economics explains this with clarity – In order to control the inflation, RBI hikes CRR to tighten monetary supply and also to squeeze the purchasing power and this leads to pouring of more and more money in the Indian financial market which further pulls the value of rupee along with it. There is no tool which can help in bringing down the interest rates on one side and also prevent the currency from appreciating on the other side. I reiterate that perfection lies in maintaining the balance between the two which RBI had been doing pretty well.

One again the main reason for trade deficit (Imports – Exports) is the appreciation of rupee. Since rupee is trading at all time high since last decade, exports are hit badly. RBI is trying hard since last few years to encourage private investment into India which has helped to a great extent but still much is awaited. As rupee is getting more expensive it is adding more fuel to cost competitiveness of neighboring countries like China, Japan and so on. Our peers are pushing more and more goods into India to gain from the rising rupee and we are bound to oblige them as our wages and operating costs are at all time high. Some firm steps needs to be taken in this area to bring down the appreciating rupee or our country will become a dumping ground for other Asian economies which are far more cost competitive than India.

Having analyzed both the sides, I come to a conclusion that we are growing at a record rate and much is required to be done in rural areas. Infrastructure, agriculture and literacy are the core areas where we need to concentrate to keep the momentum going. The world is watching India and they are ready to pump in more and more money visualizing the potential and penetration which is unbound. The only point is to revisit our policies time and again, keep the doors open for rest of the world (open economy rather than closed one) as we need more and more funds for infrastructure development and also maintain a balance between inflation and growth.

When finance minister, P Chidambaram says 14 years are just enough to reach the milestone, I have every reason to be bullish on India. Let me make a bold and logical statement that if we can sustain a growth rate of 8% plus and also keep the inflation in control, 2050 is too far and we may be developed country well ahead of 2050. Read this and you may be taken aback – Few weeks back I saw an interview of Mr. Jeffrey Immelt, CEO GE (fortune 500 company) in which he went to the extent of saying that if he has single penny to invest, he will put it in India. Impressive, isnt it?

I hope all the queries and dilemma of my friend are answered by now. I know, even he wants my cherished dreams to come true as it is directly related to him and all the citizens of my country who are as much a part of it as I am. Wait and watch patiently as my country will definitely emerge as a developed economy This is my message and after all Rome was not built in a day. I hope the fears of my friend never comes true

(The author is a chartered accountant working with TATA group. Statistical figures are taken from research report and the views expressed are personal.)

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