Inflationary pressures will build globally
Oct 23 2012, 20:27 | By Entrepreneur
By Harsh Goenka
The pace of change in the last decade has been dramatic for India. There have been great strides made in the fields of technology and segments like media, capital markets and construction. The developments in communication and television media have been noteworthy, if not extraordinary. Industry, led by the dramatic growth of IT firms becoming truly global in size, has not only brought India to the world stage but also driven the pace of reforms. A spate of acquisitions of marquee companies by Indian businessmen has been an overt expression of the confidence that Indian companies and business groups have operated with in the past few years. At the same time, we have flattered to deceive in social development, public accountability and political progress. The level of public sanitation, health services and housing are far below world average in standards.
From an economic perspective, at the moment there is a pause, a gigantic heave. There is palpable uncertainty and while eternal optimism is one of our core traits, the tendency to be dragged into the vortex of gloom is fairly tempting right now. We have seen how a massive-scale government support has managed to keep the US economy afloat even as Europe is tottering. The India-China bandwagon is still managing to sustain confidence, although exuberance has been replaced by caution. Domestically, we have been grappling with too many issues. There is the much talked-of policy paralysis and the daily dose of corruption is sufficiently incremental to ensure we never tire of it. Despite all this, India still holds enough promise to prevent any large scale pull-out by investors and FIIs in particular.
So inevitably, there will be continued financial stress and bouts of market volatility. There will be elections this year in the US and then soon in India. Therefore, the next milestone to look out for is who comes in and what will be the change. While we await that, the question then shifts to the longer-term outlook. The next three years.
Europe and a few other advanced economies are likely to continue to live with the now familiar combination-too little growth, too much debt, high joblessness and growing calls for greater social justice. Given current policies, none of these are likely to go away any time soon and may probably entail a series of sustained negative shocks for individual nations, the region and the world as a whole. The most probable outcome is that the eurozone will evolve into a smaller and less imperfect entity-namely, a closer political union of countries with more similar conditions.
Over the next three to five years, the US will look good relative to Europe, outperforming in terms of growth and financial stability, which augurs well for India. The emerging economies as a whole are expected to continue to outpace both Europe and the US over the next few years. Russia is a bit hazy to predict, but oil is most likely to keep it above water.
Emerging economies will account for more than 50 percent of global GDP in the next three to five years in purchasing power parity terms. Their size and growth rate will influence even more the functioning of the global economy. So, turning to illustrative numbers, I expect growth in advanced economies to average about one percent annually over the next three to five years and about five percent for emerging economies.
Thrust on healthcare
Specifically in India, a lot will ride on whether the government is able to invest in various planned programs. With the election over a year away, it is uncertain. In my view, infrastructure will nevertheless be a fast-growth sector. Potential investments in power, water, railways and roads are now a necessity rather than a discretion. The healthcare sector will be the next big growth sector where better health services and increased health insurance will result in improved markets for both pharmaceuticals and the medical treatment business. The IT sector will see a lower rate of growth as margins take a hit with rising staff costs. The manufacturing sector as a whole is India's largest business segment. However, investment in this sector is seriously hampered by red tape and lack of reforms and the labor situation. The services sector will continue to maintain its growth rate, driven by good demand from a rising young population. The other sectors that I would pick out for specific mention are consumer goos, food and beverages and the leisure business.
You would have to be in North Korea to deny that the world is in the midst of an economic dilemma. We are at a defining point in our history where our choices will govern the well-being of generations to come, whether it is about conserving resources, protecting the ecosystem or about bringing harmony, so that the world as a combined entity works towards mutual benefit.
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