Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy.
However, despite having a GDP of US $1.09 trillion (2007). This works out as an average GDP per capita of $964 ($4,182 at PPP – cost of living is relatively cheaper in India)
Growth in 2007 is forecast to be 9.2%. Growth will slow slightly next year. The RBI estimates the economy to grow at 8.5% in the financial year ending March 2008.
Furthermore, despite the rapid growth, poverty remains a real problem, especially in rural India. In 2008 and beyond India faces the real challenge of making sure that all sections of the population continue to benefit. Current estimates suggest that 27% of the Indian population live below the poverty line. According to this article, 77% of Indians live on less than half a dollar a day. Most of these low wages are in the informal sector, working in agriculture on doing odd jobs.
Strengths of Indian Economy
- FDI. India is one of the world’s largest recipients of FDI. India has become the favoured location of outsourcing labour intensive work such as call centres.
- India benefits from a well educated middle class, fluent in English.
- The economy is reaping some of the benefits of greater market liberalisation and privatisation
- Rich in Natural resources such as gold, Coal, iron, diamonds. (however a net importer of oil. only produces 25% of its energy demands.
- See article: Strengths of Indian Economy
The Indian rupee is worth about 42 to $1. and 55 to 1Euro
With stronger growth and rising interest rates, the Rupee could continue to appreciate against other currencies in the coming year. The challenge will be whether India can maintain growth without becoming inflationary and unsustainable.
Indian Stock Market
If the rate of Indian economic growth is maintained, the Indian stock Market offers great potential. Investment bank, Morgan Stanley believes the SENSEX will touch 50,000 by 2020. (The SENSEX is currently around 13,000)