India likely to remain the hot pick for world : ET

India likely to remain the hot pick for world

In the age of globalisation, saying no to foreign money is almost unheard of. But in a rare instance, the Indian government led by finance minister Palaniappan Chidambaram has been campaigning hard to curb foreign inflows into the Indian market. After all, foreign money has been relentlessly chasing the Indian growth story. Out of the $68 billion that foreign institutional investors (FIIs) have been pumping into India, as high as $16 billion have entered into the Indian market this year alone. Even in foreign direct investments (FDIs), about $30 billion is expected to land up in India, up from last year’s $19 billion, including reinvested earnings. The forex reserves have been surging, and it has crossed $270 billion.

By now, the India story is fairly well known to the rest of the world. A trillion-dollar economy with a GDP growth rate of 9% or so, India has been the hot favourite among emerging markets, thanks to its strong fundamentals, transparent policy framework and vibrant corporate sector. Yet, the highs of 2007 could result in major challenges in the year 2008. The big question here is whether India will be able to grow at the same pace while coping up with unprecedented phenomena such as appreciating rupee against dollar, flooding of foreign capital in a few select sectors, lack of capacity building in infrastructure sector and above all, unforeseen political turmoil emerging from a pre-poll milieu.


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ADB’s managing director, General Rajat M Nag feels that no one doubts India’s growth story by now. What’s needed is a massive outlay in infrastructure. “The needs are huge, and the fiscal space is limited. As a sizeable amount of public resources has to be spent on education, health and other social sectors, public-private partnership (PPP) is crucial for infrastructure sector,” he says. For Mr Nag, the shortage of power and lack of power reforms in the country could play a spoilsport for India story in 2008 and beyond.

According to ADB’s estimates, India requires $700 to $800 billion of investment in infrastructure in the next five years, which is substantially higher than the estimates made by the Planning Commission. Prof Raj Raina of Gordon Institute of Business Science, University of Pretoria, in South Africa, says that India will keep its growth story in tact for 2008 and beyond. “That India is now determined to build its infrastructure is itself a positive sign.

No country in the world will spend so much money in infrastructure for the next five years as India is planning today. I am sure that India will maintain 9% plus GDP growth rate in the years to come,” he says. Yes, the spending on infrastructure itself could be a big driver of growth for 2008 and beyond. According to Planning Commission estimates, $145 billion or 30% of the total investment in infrastructure will come from the private sector. The growth of PPP framework in India will enable many infrastructure companies to increase its size and scale in the coming years.


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