For over a year now, it has been clear to me that growth in India will be higher than the most optimistic estimate. I had written as much in my column last year and have, at least so far, been proved correct.
Even as economists raised their forecasts into each quarter as both documented and anecdotal evidence kept growing, the final growth figure in each of the past four quarters has, indeed, been higher than the best estimate.
To my mind, the reason for this is that there are myriad -- perhaps, an infinite number of -- unopened envelopes in the Indian economy. By unopened envelope I mean some force that is difficult to see, let alone measure.
To be sure, the opened envelopes are rocking as well. Just last week, the NCAER's Business Confidence Index rose 7.6% QoQ and 4.5% YoY for the quarter ending October 2006 -- not counting a dip in July this year, the index has risen for four years straight.
The index, now at 152.5, is only marginally lower than the all-time high of 154 recorded in April 2006. Clearly, the measured economy (even including softs like "sentiment") is fit and well and set to grow at, according to Citibank, 8.3%.
The unopened envelopes that I speak of are the millions of growth impulses that are spreading virally deeper and deeper into the economy. The other day, I bought a bidi from a paanwala near Kala Ghoda and, to my delight and surprise, instead of the smouldering rassi that I could use to light my fire, he had a very slick lighter -- one of those where the flame doesn't spurt out but rather glows right at the surface, so it can work even on a windy day -- hanging by a string on his stall.
A small thing, no doubt, but significant, in my view, of how low-end vendors are slicking up.
This, of course, tells you that low-end consumers are demanding more modern stuff -- indeed, that lower and lower swathes of the Indian economy are becoming "consumerised."
And, because of their numbers, it is their spending impulses, driven both by the modest but significant income growth as well as the increasing intensity of the media bath we live in, which have a multiplier impact on economic growth. And since much of this economic activity takes place in the still "informal" economy, the statisticians remain continually foxed. I am sure that most forecasters now simply add 10 or 20 basis points to their rigorous forecasts because we are like that only.
Of course, the formal economy is also hot as hell and can only continue to heat up as a new generation of young professionals is earning and spending at an unprecedented rate, and this trend will only continue as they progress through their life cycles -- marrying, buying homes, and raising their children -- spending ever more in "keeping up with the Patels and the Shettys."
The RBI will need to continually keep things cool -- picture Dr Reddy in a printed shirt, shorts, shades and a cool, frothy drink in a coconut shell -- and I would guess that interest rates will not be coming down for a long time.
However -- and here's another unopened envelope -- even if the cost of money remains at current levels or even rises, mid-sized companies could see improvements in borrowing costs as markets deregulate further over the next few years and the frictional cost of borrowing declines.
India today is full of such unopened envelopes. Look at the Lalu surprise on transportation costs, for instance; the continued growth of exports, despite a steady-to-strong rupee; the sudden surge in tourism earnings -- the list of surprises is long, and growing.
The truth is that, the stop-and-go of politics notwithstanding, the Olympic flame of liberalisation is definitively lit, and India is actually fully in the hands of "the market."
And as, from time to time, the market kicks open down a prejudice or opens up one of our grotesque inefficiencies, another unexpected envelope opens and we get another surprise bolus of growth. And, as the pace of growth accelerates from the current 8.5% or so, the impact of each such burst is multiplied.
And, of course, this being India, there are an infinite number of grotesque inefficiencies to be kicked down, and since we are all of us merely human, an untold number of prejudices to be unwound.
One that I see quite often, and which may well prove to be the most important -- the last??? -- unopened envelope of all is our still (collective) sense of inferiority to the "developed" world. Even sophisticated, urbane businessmen fall prey to this -- speaking about "goras", for example, or the "I showed them" attitude upon returning from an international conference.
But this is all simply the respooling of history. We -- the forty- and fifty-somethings -- are new to the world stage. In another decade or so, when this envelope opens fully, and we see that we are special not because we are Indian, but because we are part of one world community, the surge of energy as the ropes of prejudice are cut free will push growth higher than even my own wild prognostications.
Fasten your seat belts!
