India - A Developing Nation

A lot has changed over the last 50 years and a lot more going to happen in the coming 50 years. This is said in reference to the growth that’s happening in developing countries like India. When the world is investing in our country to reap the advantages of the handsome gains that are going to occur over the next couple of decades, are we out here working to take the advantage of the same?

To be very frank, I don’t see this happening. We are showing the bias of short-term benefits at the cost of long-term advantages. When there are so many calculations that are being put down by foreign institutions about the growth of India, the drivers of the growth, the obstacles; we don’t seem to think with the same long-term view as they happen to. Is the growth that they are foreseeing just some random assumptions, or are they forecasted on the basis of some fundamentally good studies?

What Is Working to Our Advantage?

1. Demographics: The advantage of being the second most populous nation is that we have one of the largest workforces (people eligible to work and contribute to the growth), which is one of the important factors for the development of any nation.
2. Rising Income levels of Individuals (also known as Per capita Income or measure of prosperity): With the income level rising there is a lot of money ready to be spent and saved, both of which contribute to the growth of any nation. This leads to a lot of domestic demand, making our country self-reliant. This is one of the reasons why many multi-brand retails are eyeing Indian markets.
3. Direction of capital accumulation: Lot of capital is required for any sort of development of the nation, may it be infrastructure development or any sort of research. There is a lot of liquidity that has already entered our country (and lot waiting to come in).
4. Productivity growth lead by Growth in Technology:  Technology has played a very vital role in the development of any nation. The advantage of being a developing nation is that we can use technologies readily available in the more developed countries. This process known as catch up process is again helping us a lot.

What More is Needed?

1. Sound and stable Macroeconomic policies: Sounds terrible, but it’s not that bad. By sound and stable macroeconomic policies, we mean a low inflation environment, supportive government policy to growth (low fiscal deficit), and well-managed exchange rate.
2. Strong Political and Legal environment: Political uncertainty and instability discourages investment and damages growth. And having a strong legal system helps built faith in the system and encourages investment.  Although the government has shown the steps by letting a lot of privatizations in PSU’s (leading to less government hindrance), a lot more is needed to be done. We also need to curb corruptions at all levels by having a strong Legal system.
3. Openness: Openness to trade and foreign direct investment has been an important part of successful development. It can lead to imported inputs, new technology, and larger markets. This is one of the factors where we need to improve a lot.
4. High levels of education: High levels of education are related to increased economic growth. As economies grow they may face shortages of skilled workers. We receive a very low mark for education indicators and we need to do a lot of work to improve the same.

Over the coming decades, our country is going to become a much larger force in the world economy. India has potential to show fastest growth over the next 30 – 50 years. So, let’s believe in the story and start building a healthy portfolio for a really long period. And the results are going to be startling.