To us, here and now, it appears thus.

rants, ramblings and other things that make life worth living…

Musings on Indian Economic Growth

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The phenomenal growth that has occurred in the last few years in India can be attributed to two major factors. One the outsourcing boom in India, which brings in a tremendous amount of foreign exchange to our country. And secondly the improved investor confidence in the stock market which has also led to FII investing in the Indian stock market. But looking a bit behind the second reason, the new economy which is primarily dependent on the outsourcing boom, is the reason why there is improved investor confidence. There is higher spending power, and the new day knowledge worker is more cognizant of other forms of investments like stocks and mutual funds.

Though, all this is a reason to rejoice and revel in the prosperity that our new economy has bought us, we must for a moment pause and think about whether is it really sustainable? And is it as good as it seems? As I see it, the answer sadly is no. Unfortunately "India shining" applies only to a small section of the Indian social diaspora. Which is mostly dependent on the powerful outsourcing boom. Bluntly put, the new Indian middle class, is fundamentally not dependent on Indian markets for its lively hood.

This is such a skewed situation. With a more than 16% of world population residing in India, Indian markets are huge. Mind bogglingly so, yet they are mostly untapped. Purchasing power for major parts of the society has not improved in spite of the considerable increase in the outsourcing boom (because, mostly they are not correlated). The Indian consumer still is less powerful than an average western consumer that most of the outsourcing boom caters too. Our local markets are weaker and hence does not have enough power to drive capital asset appreciation. The new information economy is dependent on a weak rupee to be profitable. The local market has been neglected by the government at the cost of promoting the "new economy". We haven't made more Indians richer, we have just made a few Indians more richer.

So, what's wrong with that you may ask? Well, sustaining the new economy means keeping the rupee weak, and decreasing the purchasing power for a majority of the Indians. This means, our markets (not the stock market) but local Indian markets are weaker than local western markets and hence keeping a lot of Indians poor. In the worst case it might lead to violent revolutions and sometimes duct-tape solutions which are promoted with revolution like whats happening with the people's war group in many parts of the country. And keeping a majority of Indians poor for the benifit of making a few indians richer is never a good idea.

Signing Off,
Vishnu Vyas


Written by vishnuvyas

March 30, 2006 at 7:06 pm

One Response

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  1. […] I've been usually criticised (of course by a lot of well meaning people) for bashing the current development model of the indian economy, or the fact that how its really bad that low entry barriers to the BPO and other Back Office Industries imparts a serious strain on the youth of tomorrow.  But hearing the ex-CEO of Wipro, a major player in the Indian IT and ITES diaspora echoing my sentiments, but more eloquently that I ever could, was definitely as pleasent surprise that I never could have expected in a million years. […]

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