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By Mike Caggeso
India's poor domestic infrastructure, high population and threatening levels of unemployment will slow the country's real gross domestic product [GDP] growth, Moody's Economy.com said in a report.
It forecasted India's real GDP to slow to 8.0% in 2008, down from the 8.8% it posted in 2007, MCO) reported.. Other reasons for the slowdown are slowing consumer spending, reduced demand for housing and government controls to tighten monetary policy, the econometric-research unit of Moody's Corp. (
The Challenges Posed by Growth
Growing 8.0% a year isn't a problem, per se, but it can create problems if that economic expansion isn't properly managed.
That's why the government has been particularly strict on controlling inflation; since October 2004, the Reserve Bank of India has raised its benchmark interest rate nine times. It also capped retail fuel prices. Both tactics have helped the country hold inflation below its year-end target for the eighth month.
However, one of the government's shortfalls is its expectancy that the country's strong organic growth can keep pace with the demands of its soaring population. Moody's said that while wages are increasing, fewer labor-intensive jobs are being created, which could spark an escalation in unemployment for the country's poor and blue-collar working classes.
Nor can the government keep pace with the country's exploding growth, notes Karim Rahemtulla, an expert on India investing who recently led an investors' trip to that country, exploring its financial hotspots, stock exchanges and promising companies.
"The roads are a mess. The power grid is a mess. Everything is a mess. I noticed it as soon as I set off for my hotel," he wrote of his trip in a November essay for Money Morning. "The Taj Mahal Hotel in Mumbai is a fabulous place, but despite being just 15 miles from the airport, it took an hour-and-a-half to get there."
Branson Wants Some Air Time
Some of the growth obstacles are of the country's own making. One example: India doesn't allow foreign airlines to take stakes in local carriers.
That apparent roadblock prompted Virgin Group Ltd.'s billionaire chairman, Sir Richard Branson, and U.K. Prime Minister Gordon Brown, to visit India last week to lobby its government to loosen trade restrictions between the countries. Aviation, an industry that's growing more than 25% annually in India, was on the agenda.
Branson, who said he has been "lobbying [to try] to get international flights to and from India" for 15 years, didn't just make appeals to the government on this trip: He also appealed to the country's growing consumer base via the media.
"There should be no barriers to the entry of any company… this is in the interest of the consumer," Branson told reporters in New Delhi.
Branson also hinted at coming back to India in a few weeks to develop a mobile-phone venture, but provided no details.
India is the world's hottest mobile phone market, and industry heavyweights are salivating over the region's possibilities – not just because of its growing population, but also because there are hundreds of millions of people without mobile phones, meaning the market still has tremendous new-customer potential.
And Branson's not alone. Even before he mentioned his own interest, Britain's Vodafone Group PLC (VOD) disclosed plans for a $6 billion investment in India's mobile phone market over the next three years. Vodafone currently has 40 million subscribers in India and has set a target of 100 million.
News and Related Story Links:
- Thomson Financial News:
- Thomson Financial News:
Branson Wants A Slice Of Indian Aviation
- Money Morning Economic Analysis:
Goldman Sachs, India Expert Rahemtulla Both Predict a Stronger Indian Rupee, See Investment Opportunities
- Money Morning Special Investment Research Report:
Outlook 2008: Five Ways to Profit Even If India's Growth Slows in the New Year.