02 March 2006

The blues in the US can put India in the red

India will become very important in the near future.

Indians have a strong entrepreneurial spirit and it has now surfaced for all to see. The world is no longer a stranger to the success of Indian businesses, spearheaded by the likes of the Ambanis, the Tatas, the Narayana Murthys, the Premjis, the Birlas and the Bajajs. Even the Mittals and the Hindujas from around the world are ready to put on their Indian garb and share their crowning glory with India.

Our story is that of a liberalising economy, something that is helping our recent rate of growth. The service sector has blossomed, with new industries growing in areas such as tourism, healthcare, management and communications consulting, besides the IT and ITES which the whole world talks about. Among the developing economies, our potential is second only to China, only because our business culture is not as thrifty, nor as protectionist, as the Chinese. There is every reason to believe that we shall continue on our growth path, at least, for the next ten years.

But, as things are, are we not overconfident?

For one thing, we are too reliant on the US for exports. The fact is, so are many other countries around the world… increasing the debt burden in the US. This makes us vulnerable to an economic downturn in the US, as it does for the other countries.

I mean, what if the blues hit the US economy suddenly? What if, for some reason such as a rise in the real interest rates, there’s a recession in the US? It’s bound to have a negative effect on India, right? A recession on US soil is likely to push the US economy into adopting protectionist measures. And this, in turn, is likely to cause a fall in demand for Indian exports to the US. As a result, our growth rate will be lowered, pushing our economic balance sheet into the red.

Meanwhile, with an over-populated agricultural sector which has very little going for it, and an industrial sector rapidly invaded by the Koreans and the Chinese, India may not have too many choices left for its economic development.

Isn’t it time we looked inwards and directed some of our entrepreneurial spirit for India’s long-term growth?

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