Feel-good factor to stay on

Kumar Mangalam Birla

India is back in currency. As the nation stands on the cusp of explosive growth, I believe "the feel good factor" is here to stay. The year 2003 has been a remarkable one on practically all fronts, signalling a tremendous resurgence in the economy. We have had a good monsoon. The faith and confidence of foreign investors in our country's economic prospects have been amply demonstrated with their putting in a record $7 billion during this year.

Today, foreign exchange reserves in excess of $100 billion are at an all time high and secures us against any adverse external shock. In turn, this has prompted rating agencies to revise their outlook on India. Quarterly profits of corporations are soaring, helped by low interest rates, increasing demand for their products, and improved productivity.

Overseas jobs are moving to India as the outsourcing wave gains momentum. 50% of Fortune 500 Companies have taken this route. Interestingly, 100 of the Fortune 500 Companies have set up R&D centres in India, and GE's R&D Centre here is its second largest with over a 1000 PhDs.

As India outperformed the global economy in 2003 by a considerable margin, the whole world became alive to our country's potential. Stock markets are booming and currently represent wealth close to 55% of our GDP. So we have more than one reason to be happy.

The underlying trends in the economic fundamentals point to a performance that will be sustained well into the future. India's cost advantage, and availability of a pool of skilled labour are proving to be sources of competitive strength. Our brain power has reshaped corporate America and continues to march on. One-third of NASA scientists are Indians and there are over 5000 Indo-American professors in American colleges. At Harvard itself, I believe, 10% of the faculty comprises Indian intellectuals.

In today's world, globalisation is not an option but an imperative. Indeed the only option is how to harness the forces of globalisation to one's advantage. Companies will locate where the costs are the lowest, and will service those markets where the returns are the highest. Therefore, it should come as no surprise that global auto companies are increasingly sourcing their components, and even designs, from India . Many other sectors are following this trajectory. And this will further fuel our growth.

Earlier, India's traditional strength in services could not be exported, as services were seen as a non-tradeable sector. Today, the scenario is very different. Our techno takeoff has been and continues to be spectacular. Additionally, with growth in the telecommunications infrastructure, skills even of a radiologist, or a secretary, or a financial analyst, or a computer programmer, have all become exportable.

High quality customer services can now be delivered over a telephone link, one end of which could be in Bangalore or in Hyderabad. And this is causing the great exodus of jobs from high cost countries to India. The relative youth of India's labour force is yet another vantage point. The need to harness this favourable demographics to its maximum potential, is well recognised today. It will also be the mainstay of India's pension reforms.

Adding to the domestic cheer, the global economy, especially the US is showing strong signs of recovery. It is remarkable that during 2002-03 India's exports grew at close to 19%, despite at least two handicaps - a weak global demand and stronger rupee. Double digit export growth is continuing this year also. The stronger rupee is causing imports to surge as the trade deficit continues to widen. The current account has been in surplus, because software and tourism earnings wipe out the trade deficit. However, this year the current account may go into a deficit.

This is welcome - especially if that deficit results in capital flows into infrastructure. India's aspiration of achieving 8% growth entails an annual investment spending of about 30% of the GDP. Since domestic savings is about 25% of GDP, the extra 5% has to come from foreign sources, which translates roughly into $25 billion of foreign investment. For this to happen, the current account cannot be in a surplus.

Finally, we can all bet on India's prosperity. With an expected 7 to 8% GDP growth and inflation under control at 4 to 5%, the scene at the macro level is indeed encouraging. Oil prices seem stable too and there is hardly any likelihood of pressures from other quarters. One hopes that the rain gods will continue to be benevolent and no untoward global incidence occurs, in which case, we can all keep smiling.

(The author is the chairman of The Aditya Birla Group)