Manufacturing sector: Contributing their mite to the booming economy

At a time when murmurs of a slowdown and overheating in the Indian economy have started gaining momentum, the Indian rupee sprang a surprise by pushing the GDP figure past the trillion-dollar (Rs 42,00,000-crore)-mark. The only countries ahead of India are the us, Japan, Germany, China, the UK, France, Italy, Spain, Canada, Brazil and Russia. Can India sustain a trillion-dollar GDP? That's the first question on the minds of every economist. "I don't think we should be reading too much into it as the underlying fundamental factors remain the same," says Subir Gokarn, Chief Economist at CRISIL. Adds Sunil Rongala, Chief Economist at the Murugappa Group: "It's a pure accounting feat."

But not everyone is willing to dismiss it as a statistical coincidence. Says V.N. Dhoot, Chairman, Videocon Group: "If the Indian economy grows at 10 per cent every year, we will reach the $10-trillion mark in the next 25 years." But, he quickly adds a caveat. "It will be difficult to sustain such a high growth rate over 25 years."

Kishore Biyani, Chairman, Future Group, which owns the Pantaloon and Big Bazaar retail chains, points to the need to find newer engines of growth. "The Indian economy needs fresh triggers to be able to maintain such high growth rates," he says. The current boom in the economy is led mainly by the services sector. Manufacturing industries have also contributed their mite to it while agriculture has been the laggard. Dhoot thinks that it is manufacturing that can provide the next big thrust to the economy. "India can become a manufacturing hub for the world," he says.

But P.K. Choudhary, Vice Chairman, ICRA, believes the services sector will continue to drive growth. And Gokarn believes that "in export-oriented services, our dominance in it & it-enabled services is likely to continue."

Others believe it is the domestic consumer-oriented sectors like food processing, automobiles, private education and health services that will drive the economy past the $10-trillion mark. "India's consumption story is definitely a big trigger for growth. People's aspirations are soaring, whether they stay in metros or in smaller cities and towns," says Biyani. Dhoot agrees. "Automobiles and consumer durables will be big contributors," he says.

All the people BT spoke to for this report were unanimous that the benefits of a larger economy will begin to benefit the poorest of the poor even before the country's GDP hits the magic $10-trillion mark. Gokarn says that while disparities between the more prosperous and poorer states may widen in the short term, the gap will close in the medium to long term.

Which state will gain the most? Dhoot feels Maharashtra, West Bengal, Tamil Nadu, Punjab and Gujarat will be at the vanguard of the march to $10 trillion and also the biggest beneficiaries of it.

But how long will it take to get there? Marut Sen Gupta, Head (Economic Policy), CII, places the issue in stark mathematical perspective. "GDP will double every seven-to-eight years if the economy continues to grow at 9 per cent," he says. Prime Minister Manmohan Singh has reiterated several times that he thinks such a growth rate is sustainable over the next two decades and beyond. If facts bear out his optimism, the $10-trillion economy could be just a quarter century away.

-additional reporting by Rishi Joshi

INSTAN TIP
The fortnight's burning question.

IS THE SUPREME COURT STAY ON QUOTAS IN HIGHER EDUCATION A STEP IN THE RIGHT DIRECTION?

Yes. Rahul Bajaj, Chairman, Bajaj Auto

I have consistently been in favour of uplifting the downtrodden and Dalits. However, I believe that the unanimity of the political class in supporting reservations for the OBCs is essentially just a reflection of the votebank politics.

No. Nilotpal Basu, MP, Rajya Sabha, CPI(M)

The decision amounts to the entry of the judiciary into a territory which is exclusively the prerogative of the legislature. We hope that the Supreme Court understands the situation and the reason behind the legislative amendment. As of now, commenting on the effective outcome is very hypothetical.

Yes. Amit Mitra, Secretary General, FICCI

Obviously a lot of thought has gone into the ruling of the apex court. It points to the need for further debate in the country on the issue. The SC is concerned that the correlation between the economic status of the OBCs and their caste status may have weakened.

-Compiled by Amit Mukherjee

Q&A
"We will Double our Headcount"

Jim Clifton, chairman and CEO of Gallup Organization, was in India recently to explore opportunities of scaling up operations in this country. He spoke to BT's Rishi Joshi on his company's plans in India. Excerpts:

From being a pollster, you have expanded into management consulting. Where do you see your growth coming from in India?

Globally, our revenue mix has changed. Today, about 50 per cent of our revenues come from consulting. In India also, it's the same but we are working towards making it 80 per cent consulting and 20 per cent polling soon. We will also double our headcount here over the next 24 months.

You have done significant research on customer and employee engagement. How is it related to business outcomes?

Our business has to do with making workplaces more productive and with leadership development. We survey customers and employees and report, like accounting data, how a company is doing. So sales, profit and share price increases are indicators of what's happening with the humans in any corporation. What you are really trying to do is create systems and take initiatives that increase customer engagement because it leads to organic growth. Our data helps you do that.

What distinguishes your approach from that of other consulting firms?

Other firms are driven by neo-classical economics, but Gallup is based on behavioural economics. That's the big difference.

Massachusetts Treasury Buys the India Story

Man on a mission: Cahill

The left may be consistent in its opposition to deploying pension funds of Indian professionals and workers on the stock markets, but the country continues to benefit from inflows from foreign pension funds. The latest show of interest comes from the State of Massachusetts. Timothy P. Cahill, Treasurer and Receiver General of its state treasury, was in India recently to explore opportunities for deploying a part of its $48-billion (Rs 2,01,600-crore) pension fund here. "We are looking at long-term investments in private equity funds and venture capital firms in India," says Cahill, adding: "We already have $100 million (Rs 420 crore) parked in India through third party investors. And the results have kind of been motivating." The state had set aside $5 billion (Rs 21,000 crore) for investments in VC firms, 60 per cent of which has already been deployed in the us and Europe. "We plan to invest the rest in Asia in general and India in particular," he says. The ticket sizes will typically range from "a couple of hundred million to a billion dollars".

Why India? "Everyone here seems to be working six days a week; you have a skilled workforce; and the government is committed to creating good infrastructure. These make it more exciting than the US and Europe," he says. Which sectors is he looking at? Ideally, Cahill would like to look at PE firms investing in distressed companies and those dealing with loans. Besides, select companies in the biotech, it and medical equipment sectors are on his radar. "I have met representatives of WL Ross, IDFC, UTI and some other firms handling distressed debts; and we are looking at an individual investment horizons of 7-10 years," he adds.

So, while the government continues to drag its feet on pension reforms, the foreign early birds are all set to fly away with the worms.

-Amit Mukherjee