India a tale of two cities -- high growth and appalling poverty

New Delhi, Dec 31 (UNI) With nothing on the horizon to upset the Apple cart, the growth party, including the one at the bourses, witnessed in 2006 is expected to continue in the new year, though there is little to show that the age-old problems of poverty and hunger will be banished in the near future.

The buzz words during the year in the cities were -- bulls, buyouts and buoyancy. In the year that has gone by, Indians invested more abroad than the country received by way of FDI, despite persistent poverty and the widespread belief that income disparities were growing.

India then emerges at the end of the year as a tale of two cities-- one for the rich and another for the poor. Extreme affluence co-exists with appalling poverty and the sun shines only for a few.

While this--more or less--has always been the state of affairs, the fact of the matter is that rapid growth does not seem to be percolating down in any decipherable manner to the man on the street.

Villagers, who still form the bulk of the population, do not seem to have benefitted from any government scheme in any significant way, notwithstanding the official rhetoric to the contrary. More than 400 million countrymen are still under-employed, under-productive, not adequately fed or educated, under-clad and without a proper roof over their heads.

Suicides by farmers in various parts of the country repeatedly appeared in the headlines along with the news that the BSE SENSEX breached 14 K and continues to hover in the region.

For the first time in independent India, the economy has grown by an average 8 per cent a year. This makes it one of the fastest growing economies in the world. The high growth rate in the current fiscal is seen to be due to domestic consumption spending, high private investment and exports.

There is talk of overheating of the economy as well as speculation that growth may be slightly less next year due to the 'Investment cycle'--coming at the end of three years of an investment boom. 'The Investment Cycle'--a Text Book concept--has some reflection in the Indian case. Upswings after three years are followed by a downward movement.

Businesses have expanded capacities across a range of sectors in the last three years. But others, however, argue that past experience is not a great guide because the current growth pattern is itself unprecedented. Investment spending could well continue into the next year and beyond.

Prime Minister Manmohan Singh has set a formidable target of a ten per cent growth per annum in the next few years and the Eleventh Plan (2007-11) targets a growth rate of nine per cent per annum.

The fact of the matter, however,is that even if GDP growth drops below eight per cent next year, India will still be a firm number two in the global growth hierarchy and global investors cannot and will not ignore this. Capital inflows have been healthy and to the extent they are being driven by positive growth prospects of the economy, they will continue to remain high.

The year witnessed the incredible march of 'Brand India' in the global mart. Mergers and Acquisitions were not just confined to a big corporates, like the Tata's and Mittal's, but a host of small and medium companies are becoming Multinationals. Many software companies are taking over companies in the West, with the pharma sector taking the lead. Two outstanding examples relating to the latter are Dr Reddy's Labs taking over Betapharma of Germany and Ranbaxy buying out Romania's Terapia.

A medium-sized company like Bharat Forge made acquisitions in many countries and is poised to become number one company globally by 2008.

In the era of a quota free regime, textile companies were also in the forefront of M&A news.

The Financial Times estimated two months ago that Indian margers and acquisitions overseas had crossed seven billion. If Tata Steel succeeds in acquiring Corus it will be the senior partner. And after a fierce battle in Europe, L N Mittal eventually succeeded in acquiring Arcelor. The quantum of money that is expected to be invested by local corporate bodies outside India is expected to exceed eight billion dollars during the current calender year. It appears that the overseas party of India Inc has just begun.

The popular Sensex rose 43 per cent over the year marking what may be the crescendo of an astonishing three year bull run--one based on rapid economic growth and excellent corporate performance across manufacturing and services sectors.

There are, however, areas of concern. One of them is high volatility, the extraordinary enthusiasm that has overtaken the realty and infrastructure businesses and the poor participation of retail investors.

A workable agenda should include introducing grading of IPOs, focussing on even distribution of basic market infrastructure such as broker network across the country and legislation to strengthen regulation and inspection of intermediaries such as stock exchanges and depositories. The strength of a capital market needs to be judged by the extent of participation by domestic investors, not merely by foreign investment interest--as is the case at present.

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