The tiger will roar

But positive economic expectations are not dictated by the gods. They are built upon solid foundations characterised by great opportunities ahead, our confidence in ourselves to find such opportunities, and in our abilities to benefit from them. And on all three fronts India scores very well.

This is, of course, not to say that there are no problems facing us, there are. But with every problem there is also a positive element. Sure there will be a problem in the real estate and housing sector with high interest rates and falling or stagnant asset values. But there is also an opportunity for finally building the low-cost housing for the Indian lower-middle classes in urban India. The numbers are large, as per Indicus estimates about 17 million new housing units are required to house everyone in urban India in the next seven years. Of these about half would be in the one-room units; and almost six million units are required in the sub-500 sq ft range with a similar number for the 500 to 1000 sq ft area. The apartment costing Rs 30, 50, or 100 lakh may no longer be in as much demand, but there are millions of households that desire and can afford the benefits of a small home. The investment in such housing will be far more than the housing boom has seen in the last decade.

The IT services sector is also expected to take a big hit in the international markets. Of all the sectors, this is perhaps one sector that could do with some government action. The Indian government has long delayed putting in a strong IT backend to support its operations.

Stories of leakages in subsidies, delayed movement of security personnel, missing back-up action on bandh breaches, the long time taken to set up a business, poor rehabilitation and compensation of farmers, drying up of liquidity in financial markets, etc — all major economic occurrences have been caused or abetted by information failures within the government. These were not a result of poor intentions or poor ability.

Investment in the IT backbone of the country is essential, and now is as good a time as any to start building that. Indian IT services would gain, the Indian economy would gain, governance would be much improved, and as a consequence the Indian citizen would benefit in many different ways.

Consider inflation next. High commodity prices, including energy in the international markets, demand-supply mismatch in land markets and food sector, and government expenditures in excess of revenues were causing and sustaining inflation. Of these, international commodity prices will be sanguine with slowed world GDP growth, real estate prices have stabilised and may even fall, the government has built up decent foodgrain stocks (though vegetables and onions and such like may see some price rises). And ironically, high inflation appears to have helped government revenue collections.

There are many sectors that are on the anvil of a steep takeoff. Take the education sector, for instance. Back of the envelope calculations provide an indication. There are about 300 million children and youths in the 6-21 age group. Taking an average of one teacher per 20 pupils yields an overall employment potential of close to 15 million or 1.5 crore. Add another third for educational administration, and other complementary services and we have a number closer to two crores in employment potential.

There is enough human, financial and capital potential within the country and there is enough demand within our borders. In case of higher education, for instance, the domestic entrepreneur has already recognised this, hundreds of engineering colleges and professional institutes have opened up across the country in recent years, and there is scope for many more including vocational training and skill-improvement institutes (though most are on paper not-for profits, the reality is that the Indian entrepreneur has found innovative ways around regulations and tax disadvantages). Education is only one such sector, health care services is another, not to mention the great revolution that is coming with the spread of roads, communications, finance and education, in India’s agriculture sector.

We also don’t need to rue the potential lack of international investment. About a third of our GDP is saved and a slightly higher ratio is being invested, and both have been rising consistently. There could be some fall in both savings and investment as a share of GDP in the near future. But despite this, we will remain among the highest investors in the world, with or without Wall Street backing.

Foreign investment is highly correlated with domestic investment both across time and across countries. It is not that one causes the other; rather they feed on each other. And they are both the result of positive expectations built on strong foundations of confidence in the economy. At least where India is concerned, there is no reason not to be confident.

The writer heads the economic research firm Indicus Analytics expressexpressindia.com