India joins the top three

Fastest nation on the move- that is what India is today. Today China might still be attracting much more foreign investment but the fact is that India is catching up when we see that till the other day India attracted only one tenth of what China attracted. Importantly, India remains conservative in this regard as it is wary of the kind of money that enters economy. This alone gives it an edge that will be the envy of many.

by LALIT SETHI

India has arrived finally and has firmly put its footprint on the world stage with the international acceptance of the fact that it is

the globe’s third largest economy in PPP or purchasing parity price terms. The acknowledgement is that after the US of A and China, India is now the third biggest economy of the world. In value terms, America’s gross national product is between $12 and 13 trillion a year, China’s around $7 and 8 trillion in PPP terms and India’s around $ 4.5 trillion and racing to $5 trillion in the PPP calculations, just a shade ahead of Japan’s $4.4 trillion or a little more. As recently as early this year, it was announced that with the rising rupee value, India has already become a $1 trillion economy from about $800,000 million. This was a milestone reached and a landmark in itself, but further acceptance of the fact that it was among the top three nations of the world with an economy growing between 8, 9 or 10 per cent per year was yet to be announced and so today it is among the fastest nations on the move on a fairly wide and big spread.

One more point of significance has been that before the end of the year 2007, the Bombay Sensex closed above 20,000 mark for two days running on December 11 and 12 and National Stock Exchange Nifty closed above the 6,000 mark on both days. It is to be noted that both had crossed this big landmarks many a time on several days but there had been a correction of sorts before the day ended and the two stock exchanges stayed somewhat below the high points. Optimists believe that the next two or three months could take the market to 22,000, although there is no doubt that there will be repeated profit booking and the Sensex will go down to 18,000 and Nifty 5,500 or even less. The worst case scenario could be the 15,000 point or far below and Nifty could be down to 5000 or even 4000 if world developments are pretty bad or there is something horrific in India or a political crisis of some sort. But marketers take these in their stride. So to captains of industry or even poor small investors in whose name many sins of omission and commission are aired and crocodile tears shed. But all the same there are sharks as well as others who make a fast or slow buck all the time whether markets go up or down. It is the games they play. It is the casino they are in. They need not go to Nevada desert or Las Vegas or a thousand other playgrounds of the rich and famous as well as infamous to have their fun. It is all available at the click of the mouse or the button on the mobile or fixed line of the telephone.

India’s rapid strides have no doubt kept it far ahead of most of the world, though not all, but the day is not far when it will be accepted that India is indeed beginning to catch up with China and could do so in a decade because the Indian fundamentals are very strong. India’s democratic environment and an international ambience in large parts of many cities, not just the metropolitan ones, and the ease of use of English and understanding of it make it an attractive destination for all comers. It is true that China is still receiving foreign direct investment of $50 to 60 billion a year and for India to be getting $27 and 30 billion a year already or just half of that, but significantly until a few years ago it was only one tenth.

India could receive much more even faster, but checks and balances have been put in place: the idea is not just to prevent overheating the economy, but more than that it is that India does not want dirty money in its system; it does not need hawala cash, it does not want terror money; it does not want drug lords to have free access although most of the illegal operators use dirty tricks and insidious as well as covertly and overtly clean, but really not clean, devices, to beat the system. But the Reserve Bank of India, Securities and Exchange Board of India or Sebi and the Finance Ministry have placed a lot of hurdles in the way of undesirable people so that they do not have smooth sailing or easy access to the Indian system.

The Government is believed to have acknowledged that the rise of the rupee value is unstoppable in spite of its repeated efforts to check the rupee’s upward journey. The RBI is not any longer buying up as many dollars as it can from the market to keep the rupee down because that means flooding the marketplace with rupees and spreading inflation, which the Finance Minister and the government are eager to keep down so that prices at the wholesale and retail level do not rise too fast. They have put many new conditions on the grant of bank loans and not reduced the key bank rate nor allowed the interest rates to drop.

They have left the banks with less money by pushing up the cash reserve ratio even as the American Federal rate has been further cut by a quarter of one per cent to give the US economy, now somewhat on the downslide, if not recession, as housing and car sales decline by 70 per cent and 15 respectively, fuel prices rise unacceptably and people refuse to go in binge marketing except on what was recently called a shopping breeze of a Black Friday and now for Christmas. America would like and is pressing China to up the value of its Yuan, but China is reluctant.

But American pressure will continue so that cheap Chinese goods do not flood the American and world markets and American goods have a chance to sell. Already the devalued dollar is making Boeing and Lockheed aircraft much cheaper than the European Airbus. Many European retail prices of food and several other goods are almost twice as much as the American.

Although the American economy is the world’s largest single entity, the European Union, which is not yet a single entity but trying to be, is well above $15 trillion, but prices in Europe are sometimes twice as much as in the US, still Europe falls behind in PPP terms. But Asia could be much above $20 trillion and is the richest potential region of the world even though it is far from being a single entity, though groupings like Association of South East nations of Asia and even possibly South Asian Association of Regional Cooperation or Saarc could emerge as a force to reckon with.