In the beginning of year 2003, when the UPA took charge of the country everything looked gungho. New government with ambitious plans, overseas money (FII and FDI) pouring in (US discount rate dropped to 1 percent) expecting to reap a rich reward from the emerging economy and the much acclaimed leadership of Dr. Manmohan Singh was in place. Magic happened. Economy shifted gear and moved into higher level of growth. Local investment, FII, FDI and ECB all played a role in the economic growth. Manufacturing contributed significantly to the economic growth followed by the service sector which reached new heights of growth due to the expanding software exports. Foreign merchandise trade also picked up significantly. Given normal growth rate in the agriculture sector all looked nice and dandy and the growth rate approached 9 percent, a phenomenal rate considering the past annual growth rates were only 4 to 5 percent. Job creation in large number brought cheers to young people. In fact some Indian IIM, IIT graduates got salaries much higher than what their counterparts in the US.
With successful performances in the past, we accepted that the future will remain the same; as there were very few foreign countries competing for global surplus money. What a wrong assumption. Every country in the world is now competing vigorously for resources from the trade surplus countries. In the last decade many countries have since woken up and taken a sizable share of the foreign trade surplus capital to accelerate their economic growth. South Korea, Malaysia, Indonesia and Thailand recently are sucking in large amounts of foreign money, be it debt or equity. India even though receiving a part of it has really missed out. From the current economic level to take the economy to higher levels we will require large amounts of money (capital and equity) as one of the major inputs. Currently in India, gross capital formation has become slow, and the savings rate is also dropping due to high inflation rate. Non-performing assets of banks is putting serious dent to our economic growth. History teaches us harsh lessons. When we loose the momentum and the desire to achieve greater growth we automatically settle for lower levels of growth. Current economic growth rate of about 4.6 percent is hardly worth talking about. IMF predicts that we will achieve 6.5 percent growth rate in 2015-16. How did they come to this conclusion which they need to clarify? Inflation continues to increase unabated. Job creation has slowed significantly. Manufacturing is threatening to have a negative growth unless there are major changes occur in the economy. We will not be able to cross the 5 percent growth rate barrier.
So what is the new government going to deliver. Sell India overseas as a place of investment, cut budgetary subsidies which amounts to 3 trillion rupees, find money for infrastructure development and bring back the billions of dollars from the Swiss bank etc. They need a plan. Each percentage of growth will add approximately 1 lakh crore rupees to the economy. A corruption free government can easily add 2 percent to the GDP. Projects undertaken with both local and foreign support will help the economy to pick up the momentum.
This is an appeal to the new government. The only way India can have any future is only through achieving higher economic growth rate with low inflation. So please direct all your energy and effort to achieve this. Learn from others like South Korea, Singapore as to how they achieved it. Don’t give excuses and continue with the same old way of doing business. It is already late and if we don’t wake up and act decisively, be rest assured, we will become a basket case. Our current foreign liability is at least 30 to 40 percent more than our foreign assets and the current exchange rate is not reflective of that. So please be transparent. Speak the truth and have a plan to take us to the desired higher level of growth. Finally stop justifying our poor economic growth by blaming the external environment. We need strong leadership in whom we can trust. Whoever you are and will you kindly listen to these words?