3 'i's for 2008

Even though there are widespread expectations that the global economy will be in for some turbulence in 2008, there are equally confident views that the India growth story will continue. Three factors that played a stellar role in 2007 and show every sign of persisting into the new year deserve recognition on this first day of 2008. The first is investment. The growth performance of the past four years has been strongly propelled by investment, building on a solid foundation of consumption spending. In the second quarter of 2007-08, gross fixed capital formation, a measure of the increase in productive capacity of the economy, crossed 30 per cent of GDP for the first time, after hovering in the high 20s for several quarters. This reflects a persistent upswing from about the middle of 2003, after a prolonged slump in investment activity. The surge is visibly manifested in the construction activity that is visible all around as well as in the high growth rates and bulging order books of machinery and equipment producers. More recent data suggest that the momentum continues, despite there being some signs of a mild slowdown in GDP growth. This suggests that businesses continue to invest with horizons beyond the immediate business cycle, reinforcing the optimism about the sustainability of the growth performance in the medium term.

The second is the corporate sector, India Inc. Over the past few years Indian companies have seen productivity and profitability grow under the combined impetus of consolidation and capacity expansion. In several sectors, companies are growing faster than the availability of human resources, which poses significant and unprecedented challenges to managements. Various tactical and strategic responses are evident, providing confidence in the capability to sustain growth through continuous re-organisation. The fact that Indian companies are thinking beyond their shores has been recognised for some time, but the global expansion was, until recently, dominated by sectors like IT services and pharmaceuticals. Going by the record of the past few months, Indian companies are poised to make global acquisitions in a whole range of sectors. What's more, their experience of managing large organisations in as diverse and multi-cultural an environment as India makes it relatively easy for them to step up to the global stage.

Third, as frustratingly slow as it may seem, there is visible progress in infrastructure. Two of eleven proposed ultra mega power plants were bid out during the year. These are being implemented by the Tata Group and Reliance Energy, which should significantly increase the probability of timely and cost-effective implementation. Two new airports in Bangalore and Hyderabad are on the verge of inauguration, while work on upgrading the Mumbai and Delhi airports is in full swing. In cities across the country, there are signs of new infrastructure being put in place, typically involving the private sector in some critical role. As much as one might legitimately complain about the deteriorating quality of infrastructure, the fact is that the system simply failed to anticipate and respond to the acceleration in the growth rate four years ago. At least now, it has woken up and shows signs of closing the gap. These, in a nutshell, are the three 'i's "" investment, India Inc. and infrastructure "" that bode well for the Indian economy in 2008, and beyond.