India's economic rise not so clear cut

says Michael Blackman:
"SEEMINGLY from nowhere, Indian companies have emerged in recent years as big overseas investors, particularly in Europe and the US. And with each acquisition, the Indian media has been triumphant. Exactly why, is not clear.

India remains a capital-scarce economy and yet foreign direct investment (FDI) out of India is skyrocketing. Foreign acquisitions abroad have been funded partly by bond issues or loans raised abroad but even so, India's Associated Chambers of Commerce and Industry said in March that they expected FDI outflow for the year to be $US15 billion ($A17.3 billion), and FDI inflow to be $US12 billion, meaning that India will actually have a net capital outflow for the year. The contrast with China could not be starker — China currently pulls in about $US6 billion in foreign investment every month.
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All this when the Indian economy is supposedly growing at about 9 per cent a year. That so many Indian companies still want to diversify out of India is instructive about the true state of the Indian economy despite the headline growth rate."
His answer seems to be:
"India still spends comparatively little on infrastructure.

It spends far less than China, for example. One estimate is that for every $1 that India spends, China spends $7. It has some of the world's highest rail costs — moving a standardised container one kilometre in India has been estimated to be 53 per cent more expensive than in the US. And it takes an average of 85 hours to unload and reload a ship at India's major ports — 10 times longer than in Singapore.

Getting good managers in India is difficult. Many leave to work overseas. And that suggests another reason for investing in Europe or the US — good management talent in developed economies is not hard to come by in the way that it is in India, where too few good managers are being chased by too many companies.

Still, it is true that India's economy is doing well. But then, what economy isn't? Furthermore, India's economy is growing from a low base; it should be doing well. That an economy like India's records a 9 per cent growth rate should not be surprising. That a mature economy such as Australia's is likely to grow by 4.4 per cent this year, according to the IMF, is remarkable.

But then, World Bank data shows that when the world's economies are ranked by their average GDPs for the five-year period 1980-84 and then for 2001-05, India's position among the world's economies actually fell one notch; meaning that for the periods examined, India was doing little better than the average and worse than many.

India's economic performance today is good because in the past it has been so bad.

So it is no surprise that Indian companies remain cautious. They have endured decades of unbelievable red tape and little or no growth.

At last they have some surplus cash and, with relaxations on overseas investment and foreign exchange controls, they are lining up to diversify out of India.

But in doing this, they are not striking a blow for Indian pride. They're just being prudent."