Pull up the socks for the growth

Sign of green shoots is widely visible globally, especially in India, where day by day, Sensex is touching new high of last fifteen months. Customer has still faith in the market and showing the confidence in investing as India’s largest Insurance player LIC’s net profit grew by 37 percent in FY 2009 despite the tight economic situation. Corporate advance tax collections were up by 14.7% in September. Total advance tax collections in the second quarter stood at Rs 49,501.80 crore as against Rs 38,367 crore in September, 2008. And, foreign investors are showing more confidence to invest and flow the money into the market. Export signals, gradually increment in the retail sector, sales graph of auto industry showing the positive trend, According to the Society of Indian Automobile Manufacturers (SIAM), domestic auto industry posted the jump of 24 percent sale in August, which anyhow shows the signal of the appetite of the growth of the Indian economy, which can be gradually developed and maintain by looking forward for the investment in the untouched or undeveloped sector.

As per the survey India has a big potential to invest the money in infrastructure, water resources and energy sector. And Indian government has fair projection to invest the big share on these projects in coming decade. However, we have a question that how the government would manage the money for it. There is a investment projection of $ 500 bn in next five years in only in infrastructure industry.

It is a big concern that the inflation is again eating the joy of the common consumers. Prices of the all commodities have risen. And crude oil again has touched $ 71 per barrel, while it was at $ 43 per barrel six months ago. Pulses have already touched historical heights and other food grains also expected to touch same as per the poor weather condition, which would affect the production of principal corp.

We have absolutely different economic scenario as compare to the USA and European countries. Since we have a long way to go in some major and semi developed sector, so the Indian government needs to invest the money on such long term projects, which would not only fetch the larger liquidity in the market but also would be able to fetch big jobs in the country. However, we will have to project ourselves for a decade, as any project takes four to five years to complete, and by the time the project is completed. We again have to be prepared for the further demand for next coming years. For example, we need to maintain the demand of the growing population in terms energy consumption. Peak demand estimation by the end of XI Plan (2007) was 157 GW and by the end of XII Plan (2012) is 213 GW. With a targeted GDP growth rate of 7 to 8 percent, and an estimated energy elasticity of 0.80, the energy requirements of India are expected to grow at 5.6- 6.4 percent per annum over the next few years. This implies a four-fold increase in India’s energy requirement over the next 25 years and India faces significant challenges to meet this. And, undoubtedly, the sector demand billions of rupees and skill man force. India needs big development in infrastructure, energy and water supply. The government would find very hard note to manage the huge budget. As per a study, India would require more then $1.5 trillion to invest on these sectors in next 10 years.

We have a strong social structure, who believes in saving. And we have huge savings in various Indian banks. India's high savings rate has been a crucial driver of its economic boom, providing productive capital and helping to fuel a virtuous cycle of higher growth, higher income and higher savings. Since the 1990s, the gross domestic savings rate has risen steadily from an average of 23% to an estimated high of 35% in the 2006/07 fiscal year (April-March). As real GDP growth climbed and the economy opened up, many worried that increasingly prosperous Indians would spend more and save less, breaking the cultural habits of decades. Those fears turned out to be unfounded; prosperity has only increased the savings rate. One reason for this is the woeful inadequacy of India's social-security system.

All this suggests that India's large fund of household savings, which stood at Rs9.85trn (US$192bn) in 2006/07, will remain available to fuel domestic growth. Therefore government can use some percentage of the savings for the investment in the various projects wisely. However, the government needs to be very cautious while using it, as inflation creates biggest threat on it, which anyhow would hamper the money management for the projects. It’s a fact that any country would find very hard notes, if the inflation continually goes on for a long period of time. Therefore the government needs to pull up his socks to tame the adverse effect of the inflation and larger spectrum can be benefited of the trend of the growth.