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Is the bear
phase over?
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By
R.N.Bhaskar
---------------------------------------------------------------------------------------------------------------------------------------------------- The
pre-condition for sustained economic growth will be more and speedy
reforms in
education and labour, laws relating to the starting and stopping of
factories,
and the movement of goods across the country. Without
reforms, new investments in manufacturing will take longer to
materialise;
slowing down job formation, and hence purchasing power.
Domestic GDP is likely to grow slower. Optimists have begun to look expectantly at the stockmarket indices once again. They believe that – sooner rather than later – the bull run will resume. It possibly will within a few months, but the big question is whether it can be sustained. And there are strong indications that storm clouds lie not far ahead. Take the first table. One thing that amazes anyone about India is that while 21% of its GDP comes from exports, its share of world exports is just a meagre 1.8%. When it comes to manufactured products, India’s share in the world market drops to just 0.8% compared to China’s 7.2% (please refer to Table 1).
<> And it will need a great deal more money and skills going into education, failing which India could find itself in a growth trap; where opportunities beckon to its entrepreneurs, but the staff required to deliver on the orders may just not be available. There is another reason why educating India’s teeming millions will become critically important. Agriculture accounts for a significantly higher share of GDP for India than for many other countries. India’s agriculture contributes as much as 21% to its GDP which is significantly higher compared to others for which data is available (Table 2). On the other hand, the contribution of industry to India’s GDP is one of the lowest. While it is true that the contribution of services has swelled considerably, large scale employment and economic growth can only come from employment in the industry segment – particularly small and medium enterprises. But to make this meaningful, investors will have to find (a) skilled employees, (b) flexible labour laws and (c) easy movement of goods across India and also in and out of India. The pre-condition for making this transition take place will be more and speedy reforms in education and labour, laws relating to the starting and stopping of factories, and the movement of goods across the country. If these reforms don’t take place soon, foreign investors may soon decide to look elsewhere leaving the stockmarket bull a bit out of breath once again.
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