By HEATHER TIMMONS - New York Times - Published: March 1, 2009
NEW DELHI — While most of the world grapples with a crippling financial crisis and a recession, optimism reigns in much of India as its economy continues to grow.
India’s trillion-dollar economy remains a relative bright spot, some say, in part because the country’s bureaucracy and its protectionist polices have kept it insulated from the fallout of the global downturn.
“India is not as vulnerable” as other countries, said Rajeev Malik, head of Indian and Southeast Asian economics at Macquarie Capital, who recently wrote a report titled “India: Better Off Than Most Others.”
On Friday, India reported that its economy grew 5.3 percent in the quarter ended in December when compared with the previous year. While that was down from the 7.6 percent growth in the earlier quarter, it was in sharp contrast to the retrenchment in other countries.
Washington, for example, reported Friday that gross domestic product for the end of the year had contracted at an annualized rate of 6.2 percent, and Japan recently reported that its economy shrank at an annual rate of 12.7 percent.
Even after the G.D.P. figures were released, government officials pledged the economy would grow more than 7 percent this year, and major stock indexes finished last week in the black.
Advocates of free enterprise often complain about many of the country’s economic policies, including a state-dominated financial system virtually unconnected to foreign markets; sluggish export growth because of bureaucracy and shoddy infrastructure; and hundreds of millions of farmers who raise crops mainly for domestic consumption. But such policies have helped the country maintain its ground as the world slides into a recession.
India’s fast-acting central bank, which still has room to trim interest rates, has helped ease capital flows, while the government has stepped in with stimulus spending and tax cuts.
That is not to say that the news is all good. Both agriculture and manufacturing contracted somewhat in the last quarter, and government stimulus packages intended to keep the economy growing could hurt the country in the long term.
On Tuesday, Standard & Poor’s revised its outlook for Indian long-term sovereign debt to negative from stable, citing increased government spending. The general government deficit, as a percentage of G.D.P., would double to 11.4 percent in the next fiscal year, S.& P. analysts said, a level that is “unsustainable in the medium term.”
In addition, most optimistic forecasts have not taken into account the millions of people in India who rely on remittances, or cash sent from relatives working abroad. India receives more than $20 billion a year in remitted money, the most of any country. Some areas, like the state of Kerala, are expected to be hit especially hard by the loss of construction jobs in the Middle East.
But in other regions of the country, the good economic times are not just a distant memory. The market capitalization of the State Bank of India recently surpassed that of Citigroup, a fact heralded by the local media.
India added 15.4 million cellphone users in January, a record. Rolls-Royce recently introduced a new model of its Phantom Coupe in India, and BMW opened a showroom in Delhi. “Is this recession for real?” The Times of India asked in a March 1 article.
Executives are already talking as if a return to boom times may be just around the corner. “It is reasonable to assume that India will be among the first to recover when the recovery starts,” Nandan Nilekani, the co-chairman of Infosys Technologies, said during a recent presentation in New Delhi. “Indian business leaders seem to be more optimistic” than others around the world, Mr. Nilekani said.
“What fueled India has not changed,” Sanjay Dhawan, president and chief operating officer of Aricent, said in an interview. His technology outsourcing company has received $60 million from the private equity firm Kohlberg Kravis Roberts.
India’s youthful population, domestic demand and business innovation are helping to carry the country, some economists say. The country is still attracting investors and striking deals. The private equity firm the 3i Group said Wednesday that it would invest $161 million in Krishnapatnam Port, a project on the east coast of Andhra Pradesh state.
While developing export-oriented economies have imported problems from the developed world, India has not, the head of Asia for 3i, Anil Ahuja, said.
Projects were not being stifled by the credit crisis the way they were in other countries, he said. India’s high savings rate, about 35 percent, meant that about $200 billion a year was being saved and needed to be deployed somewhere, he said.
“The port is borrowing substantial amounts of money and has not had a problem getting it” from India’s state banks, Mr. Ahuja said.
The coalition government, led by the Congress Party, has not been shy about trumpeting India’s relative economic strengths, in advance of national elections expected in May.
The home minister P. Chidambaram predicted Feb. 24 that India’s economy would improve, beginning in October.
Still, there are those who think that the optimistic expectations are completely misguided. “We don’t know what people here are smoking,” said Shankar Sharma, director, First Global, a research and asset management firm with offices in Mumbai, London and New York.
Mr. Sharma predicts that India’s economic growth for the 2010 fiscal year will sink to 2.6 percent. People who point to India’s low reliance on exports are not factoring in the outsourcing and information technology industries, he said.
Some Indians say they would rather be suffering now with the rest of the world, and enjoy the benefits of economic reform later. “In these two to three years, we will do better than the rest of the world for the various constraints we kept on,” said Gurcharan Das, the former chief executive of Procter & Gamble India, and author of “India Unbound,” a study of India’s economic transformation and potential.
“A whole generation could have been lifted out of poverty into middle class if we had done these reforms,” Mr. Das said.