International | Feb 06 2007
By Chris Shaw
Global strategist Stephen Roach of Morgan Stanley has returned from his fourth visit to India in the past three years, viewing each trip as like peeling away the layers from an onion in the sense each trip puts the growth story into sharper and sharper focus.
He remains optimistic on its outlook as rather than competing directly with China the country now appears to be meeting its greatest challenges, those of low savings, poor infrastructure and lagging foreign direct investment, something that will then allow Indians to make full use of their strengths of a high quality stock of human capital and a strong entrepreneurial spirit.
Roach suggests the macro and micro elements are now finally coming together, as the long acknowledged inadequacy of saving and investment is now being addressed. If, as Roach proposes, an economy enters the take-off phase in terms of growth when savings and investment are in excess of 30% of GDP, it is little wonder India has lagged behind China in recent years given its rate has been closer to 20-25%.
But official figures for the year to March 2006 show savings reached 32.4% and investment 33.4%, while direct foreign investment should more than double in the year to March to a record US$13bn.
This suggests there is now sufficient savings and investment in the economy to achieve critical mass in infrastructure and capacity growth. Official policy is helping in this regard, as Roach notes plans are in place for infrastructure spending to grow from 4.3% of GDP now to around 8% over the next two to three years.
With infrastructure in place he anticipates the Indian entrepreneur to make significant advances on the global stage, as he notes the company has more IT graduates than anywhere else in the world and so has an advantage in an important industry sector.
He also points out a clear advantage India has over China in that it has a number of world class companies where the Chinese have very few, a situation likely to provide a boost when it comes to gaining global market share.
While the Indian story is not new, and Roach accepts much of it is priced into the Indian market already, his optimistic take on his latest visit to the country has him suggesting any 15-20% corrections in the Indian market should be seen as buying opportunities for what remains more than just a solid long-term story but possibly an exceptional economic development story in coming years.
