India's Potential
The International Monetary Fund (IMF) projects the world economic GDP growth to slow by 25% to 3.7% in 2008 mainly due to the dramatic slowdown in the advanced economies of US, UK and Europe (see figure 1). The trigger for the slowdown primarily arose from the credit crisis created by reckless lending and aggressive repackaging of loans in the US mortgage market and has resulted in substantial sub-prime related write downs from the major financial institutions totalling over $250bn (as of April 1, 2008). The lack of liquidity in the wholesale money markets has forced banks to withdraw or revise the terms of lines of credit to individuals and institutions thereby negatively impacting the property markets.
Although the crisis has had an impact on the developing economies, the IMF sees the BRIC countries (Brazil, Russia, India and China) as the main contributors to global growth over the next few years given the internal momentum they have generated over the last 5-7 years (see figure 2). The value of India's exports of goods and services accounts for only 20% of its GDP whereas exports make up 40% of China's economy. As a result India tends to be more shielded from external global events than its Asian neighbour.
Although many steps are being taken by the government, the black economy in India is still fairly substantial with most real estate and some business transactions having a considerable element of undeclared value. The IMF forecast of 7.9% economic growth for 2008 is therefore most probably well below the true economic growth that will be experienced by the Indian economy.
With the lack of obvious investment opportunities in the advanced economies and the continued growth story in the emerging Asian economies it makes investment in a vibrant economy such as India an extremely viable and attractive option.
