The Indian economy is showing many signs of health. The growth rate this fiscal year (April 2003 - March 2004) is expected to be around 8 per cent.
The stock market is booming. The inflation rate is a modest 5 per cent. Foreign exchange reserves have crossed the $100-billion mark. The interest rates are low. The half yearly results of the corporate sectors show robust profits. Exports are growing at 10 per cent in dollar terms.
The ruling coalition in the country has launched a loud campaign to spread the feel good factor and to persuade the people that India is shining.
However, the Indian economy has been so many times on the verge of take-off that one tends to be sceptical that this time will be any different.
Also there have been warnings that while India may be shining, Bharat that lives in rural areas is wilting. I will argue that it is indeed different this time and that India is quite likely to have a sustained high growth for some years to come. It is a shining star in the heavens and not a passing comet.
However this will depend on what we do to prevent Bharat from wilting.
Prospects of growth for this year: The economy is likely to grow at more than 8 per cent in 2003-04 over 2002-03. The question is, is this just an outcome of good monsoon and can we continue to do as well or better next year.
The impact of high growth rate of agriculture is realised more in the following year. In 10 out of 12 years since 1970 when agriculture grew by more than 5 per cent, the growth rate of non-agriculture in the year following the good agricultural year was higher than in the same year.
Also the meteorological department has predicted a 100 per cent normal monsoon. Thus at least for the next year, even a reasonable monsoon and a 3 per cent growth in agriculture will keep us going at the same rate as this year.
Trade: The major reforms over the past decade have been in the area of trade and domestic deregulation. Openness of the economy has led to an increase in the level of trade. In 2002-03 India's exports showed a growth rate of 17.9 per cent and reached a level of $51 billion.
Export growth this year seems to have done as well if not better, despite an appreciation of the rupee against the dollar of more than 5 per cent on the average.
What is even more noteworthy is that India is now exporting some of the engineering goods such as automobiles and motorbikes all over the world including industrialised countries competing on both quality and price. Manufactures now constitute 75 per cent of India's exports. With the expected buoyancy in the global economy this year, India's exports should continue to do well.
To some extent India's exports have boomed due to the pump priming President Bush has done in the US economy. Yet this will continue till the US elections in November, so at least for the coming year we should do well.
Also India's trade with developing countries of Asia is growing rapidly. It has reached a level of $20 billion. Since the Asian countries are growing rapidly, this is a good sign for India's growth prospect.
A large part of the export earnings come from invisibles which include software and IT-enabled Services. These have been growing rapidly.
Indian software and services market: India's IT market has grown rapidly from Rs 5,450 crore (Rs 54.50 billion) in 1994-95 to Rs 79,337 crore (Rs 793.37 billion) in 2002-03. The boom is continuing. Suddenly the advantage in software services, IT-enabled back office services as well as in designing, entertainment and creative literature all are now seen as drivers of further rapid growth.
After all services are the ultimate luxury goods. When your stomach is full, you want to eat in a gourmet restaurant. When your closet is full, you desire designer clothes. When you have leisure you want to be entertained.
One can look at the growth of the software sector and its growing importance. This market has grown from 0.72 per cent of the GDP in 1997-98 to 2.38 per cent of the GDP by 2002-03. Employment has also risen dramatically in this sector. The importance of this development goes beyond numbers. The sense of "we can do anything" that it has generated is precious.
Suddenly Indians are willing to take risks and venture in to new areas. Also important is that the English speaking non-specialised graduate is no longer fit to be just a clerk in a boring bureaucracy. She has an asset that earns good salary.
Industrial growth: Industrial growth is now picking up. The dramatic fall in interest rates and the ability to borrow at low rates in the international markets have increased the profitability of Indian industries.
Instead of credit at 14 per cent or more, large companies are able to raise money at 6 per cent to 8 per cent. Non-food credit off-take has increased and so has the production of investment goods. Thus industrial growth is on the upswing. The industry is also showing productivity growth.
For the small scale units, however, credit is somewhat hard to get. Banks find it easier and less risky to lend to the government whose appetite seems to be endless.
Roads: The infrastructure scene has witnessed dramatic improvements in the last few years. The prime minister's National Highways Development Programme has been a roaring success. Some recent slippages not withstanding, it is already benefiting the Indian economy.
The prime minister has followed up the NHDP with a Gram Sadak Yojana that will connect all the villages with all weather roads. The connectivity is vital for rural development, for markets to be integrated and for farmer-producers to get better prices.
Communication: In today's world of ICT, communication connectivity is critical for competitiveness. Telephone was considered a luxury good by Indian planners. Rajiv Gandhi and Sam Pitroda changed that mind set.
It used to be that to get a land line one had to wait for 10 years in some cities. Liberalisation has seen a dramatic improvement. Today you can get a phone, certainly a mobile phone on demand. Finally we have woken up that telecommunication is a vital factor of production critical for efficiency.
Power - the most critical infrastructure: Power shortages have been endemic in India. They persist even today. In Delhi's Asian Games Village Complex, I have suffered nearly 20 outages and hours without power (aggregating to more than 10 hours) last week. Even after 10 years of reforms by stealth, we have not yet got our act in order.
If we can push the development of the power market one can feel optimistic that the power situation can see a dramatic change in the near future. As I had argued in my article on October 21, 2003 this will remove a very important bottleneck that has stifled India's growth in the past.
Resilience: The Indian economy has acquired a lot of resilience. Its ability to withstand shocks has improved. With a reserve exceeding $100 billion, oil price swings do not paralyse the economy.
A buffer stock of food grains large enough, perhaps too large, to withstand any weather sequence gives further confidence that growth would not be easily interrupted.
India is indeed shining but is Bharat that lives in villages, wilting?
(The author is Professor Emeritus and former director, Indira Gandhi Institute of Development Research, Mumbai and chairman, Integrated Research and Action for Development, Delhi.)
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