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Bengal tiger's prospects are burning bright

May 08, 2004

Is India the new China? No, but there is a new India, and even if Congress, the party of nostalgic but moneyed socialism, wins the election that ends on Monday it will find that the reform process has taken on a life of its own.

The gap in economic performance and living standards between the Asian giants - each with a population of more than 1billion - has grown into a chasm since 20 years ago, when they were pretty well on a par. Today, Chinese people earnings are, on average, twice that of Indians.

But Adit Jain, IMA Asia's India managing director, says the country will probably grow by 8per cent this year. The momentum is such that it is unlikely to dip below 5 per cent, he believes. It is still running a modest fiscal deficit, but has also built up $153 billion reserves.

The higher growth figures depend on good monsoons, though. For a quarter of the economy comprises agriculture, compared with 15 per cent of China's. And India's share of world trade is less than 1 per cent, China's 5 per cent.

While it does not look as if India is catching up with China, its process of change and modernisation is inexorable - later than China, but moving in parallel.

This is reinforcing powerfully, as is Japan's belated revival, the perception of a true dawning of an Asian century whose birth was delayed by the collapse of 1997.

A sharply lower cost of funds, down by about 5 per cent to about 7 per cent, is driving an investment and construction boom in India - chiefly from domestic sources. Foreign investment is around 10 per cent of China's $70billion a year but is growing rapidly. Of the Fortune 500 companies, 100 have established R& D centres in India.

The election, in which about 670 million people will have voted, has reflected the changed climate in the country. Gurcharan Das, the former chief executive of Procter & Gamble India, says the old electoral focus on "Temple, Mosque, Caste" has been replaced by "Electricity, Roads, Water".

The BJP party that has led the ruling coalition under Prime Minister Atal Bihari Vajpayee, has campaigned on "India Shining", stressing the dividends of reform rather than the Hindu nationalism that was its original raison d'etre.

The world has watched India change through two processes: software development, and business process outsourcing. These are important, "head-turning" sectors, and their impact has made the world start to take India seriously as an economy.

China the world's factory, India its services centre. But other stories are now emerging.

Some manufacturing is shifting to China. But 15 of the world's leading car makers are now sourcing components from India.

Unilever exports half its Indian production. Wal-Mart is expecting to source $7 billion worth of goods a year from India before 2010. Hero Honda has become the largest motorcycle maker in the world, producing 1.7 million bikes a year.

Renault is sourcing tractors from India. Chemical manufacturers, such as Ciba and Bayer, are stepping up their Indian exports.

And steel-making is enjoying a revival, with healthy sales to China. Giant conglomerate Tata claims to be the world's lowest cost steel producer.

All the above are helped immensely by having a rapidly expanding domestic market as a base. The size of the "consuming classes" is estimated as anything from 40 million (those earning $5500 a year) to 200 million.

Over 15 years, Adit Jain believes, "India will emerge as a country with pockets of excellence", globally competitive in vehicles, pharmaceuticals and biotech, textiles, chemicals and information technology.

A lasting settlement of the Kashmir stand-off, reinforcing the rapprochement with Pakistan that recently produced a memorable Test series - a triumph of cricket diplomacy - would see a further surge in confidence.

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