And so 8% growth for India could be the norm from here.
Well, I think we are basically saying that India will still grow at six and a
half to 7%. But what we are arguing is that in terms
of the dynamic or the characteristics of the cycle will be similar to what we had
seen in 2003 to 7, but it was driven by investment to GDP going up higher.
So, for example, in that cycle what we've seen is investment of GDP went up
by about over ten percentage points to 38% by 2007.
And in this cycle we have seen something similar.
It troughed at 28% of GDP and we're expecting this to grow to 36% over the
next three years. So that's the similarity that makes us
feel that this is similar to that cycle. But the key important point is that if
growth is driven by investment, then for an emerging market like India, you will
not see the macro stability issues like high inflation or current account
deficit. And therefore, it makes it easier for
investors to sort of make an estimate of medium term growth, which would be
sustainable without going through some major challenges.
The question is, Chetan, what is a sustainable pace of growth for India in
the long term? The likes of Raghuram Rajan have come
out to say that India needs to grow more than 8% to create more jobs, to lift
more people out of poverty. Yeah, that's right.
I mean, I wouldn't disagree with the fact that actually India does need
higher growth rates. And we'd seen that China did achieve
something like 10% for 30 years. So to manage the concerns on job market
concerns, i.e. that, you know, if your labour force is
growing so strongly, then you need that kind of growth rate.
But we do think that there are challenges for India to achieve.
You know, 8 to 10% growth rates. The biggest issue would be the
infrastructure set up. Infrastructure is being built in India,
but not to do a lot more to get to 8 to 10% growth rate.
And then the second challenge would be about skilled manpower.
So both these constraints, we think, will
make us believe that India's growth is going to be strong.
But at six and a half to 7% rather than eight, 10%.
People are beginning to talk about how India is an alternative to China.
We're beginning to see that in the market already.
In terms of the economy, I mean, what policies are needed to to make India the
choice destination for investors? Oh, well, I think, you know, it will
have its rightful place. And we are seeing that happening already
in terms of the capital market inflows. And even when you see the FDI data,
India's market share in global FDI has been going up.
In fact, it is made the biggest delta in that market share after Japan within the
region and China has lost market share in global FDI.
So that trend is coming in. True.
But to say that the China India can completely replace China or compete very
heavily in the manufacturing sector, we think that's less likely because, you
know, China is far more advanced than us, as you see from the data that China
is getting into now, new age industries like the renewables space as well as
legacy chips. And India is going to take time to get
to that type of competitiveness. So we think India will see a gain in its
market share for global goods, exports and FDI, but it would have to be still,
you know, at its own merits rather than taking of a market share in a big way
from China.