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India's furious economic pace is no accident

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September 16, 2006 14:58 IST

Edward Luce makes two observations in his recently released book, In Spite of the Gods.

First, he says, Indians celebrate success too early, before anything really substantial has been achieved. And second, India's economic take-off is neither automatic nor guaranteed.

He is right, of course, and his book is full of good judgements like this, though he does add that it would take an incompetent pilot to crash this particular plane. These thoughts are relevant when the government has released figures that report 12.4 per cent industrial growth in July, the best in a decade.

Can it be said even now that we are celebrating too early, and does it not seem more and more plausible that India is now onto a sustainable 8 per cent growth path, one that will double GDP in nine years?

It is true, of course, that even 12.4 per cent industrial growth does not mean that the sun is shining on everyone in the land. The facts on that are well-known. But the point to focus on is not inherited poverty, which will be with us even after another two decades, but the delta factor: what is happening on the margin?

While Luce is right, the fact is that double-digit industrial growth does not happen by accident. Remember that this does not include either software services or business process outsourcing, both of which are counted in the services sector, not in industry.

Industry means capital goods (which is not just machinery but also cars and trucks), and things like steel and cement; it includes textiles and pharmaceuticals, sugar and soap, ice-cream and TV sets. What double-digit growth tells us is that all the experts who have told us to focus on services, and to let China continue to rule the roost in manufacturing, are wrong.

Because India's factories have begun to make music.

One test of that is exports. Textile exports grew 26 per cent last year, after the quota barriers got removed, and should continue to grow at that pace for some years to come.

The export of small cars is growing at the same speed as software, though admittedly from a smaller base; and the auto component exporters are no slouches, either. If the sugar market gets thrown open in Europe and subsidies are removed or slashed (only some steps have been taken so far), sugar exports could grow at a similar pace.

Talk to the country's manufacturers of paper and paperboard and they will tell you how their once uneconomic companies have become globally competitive; or to the leading maker of electric fans, who is selling his products to Wal-Mart at the same prices that the Chinese offer.

Tata Steel produces more than twice the steel that it used to, with a little over half the workers. We are not talking here of well-known success stories like Bharat Forge and Sundaram Fasteners, but of once seemingly loser companies like Videocon, which now wants to be the world's largest maker of TV sets and already has plants in many countries.

So this is no longer a story about half a dozen corporate stars in one or two sectors; and we no longer have to trot out Ranbaxy and Kiran Mazumdar-Shaw before every gathering of international businessmen.

It has become a much bigger story, and even careful observers sometimes don't fully realise how much has changed underfoot.

Could the plane crash, nevertheless? As they say, never say never. The world economy is slowing down, the commodity sector is headed for bleaker times, the downswing phase of the business cycle could see problems emerge that are hidden during the good times, protectionism could spread, and so on.

Then there are all the familiar problems with the physical infrastructure, the indefensible laws on labour and land, the delays at the ports. . .

But there is another way to look at that. If industry can log this rate of growth when weighed down by all these handicaps, think of what is possible when they are removed. If I had to bet, I would say that take-off has happened.

T N Ninan