AmCham Breakfast Meeting: Thursday, August 27, 2015– Topic: “Elephants Can Dance – An Assessment of India’s Economic Performance and Potential”. Speaker: Dr. Sunder Ramaswamy, Director, Madras School of Economics   


India’s economic performance during the first three decades since independence was christened the “Hindu” rate of growth, a term first used by Prof. Rajkrishna. This was stated by Dr. Sunder Ramaswamy during the August breakfast meet. That reference is fast fading away, thanks to the remarkable transformation in India during the last two decades. Since 1980, its economic growth rate has more than doubled, rising from 1.7 percent (in per-capita terms) in 1950-1980 to 3.8 percent in 1980-2000. Shackled by the socialist policies and the “license-permit-quota raj” of the past, India used to serve as the exemplar of development strategies gone wrong.


Crediting Prime Minister Indira Gandhi as being the architect of India’s economic reforms by her bold action of taking a loan from the IMF to tide over a balance of payment crisis in 1981-82, Dr. Ramaswamy went on to add that India has now become the most solid BRICK in the BRICS community.


India’s economic growth can be unleashed with a turn towards free markets and open trade. India has yet to catch up to China’s growth rates (or even to China’s level of income1), but thanks to its solid democratic institutions and impressive performance in information technology, the country is increasingly vying with, if not displacing, China as the country of the future in the eyes of many knowledgeable observers.


The improvement in India’s economic performance is obviously good news for its 1.3 billion people. But equally important, this transformation also holds hope for other poor countries around the world, insofar as it sends the message that rapid economic growth is attainable under appropriate policies. In 1991, the big breakthrough happened. Spurred by another balance of payments crisis, Indian policy makers turned to technocrats such as Dr. Manmohan Singh, who promptly began the process of liberalizing the economy. Trade barriers were slashed, foreign investment was welcomed, the license raj was dismantled, and privatization began. The economy started to boom, with software exports and call centers leading the way.


Dr. Sunder Ramaswamy elaborated on 10 reasons to be optimistic about the economy:

  1. GDP growth estimated to be 8% in 2015-16: India is considered to be a             bright spot in global economy.
  2. Improving industrial output: Up 3.8% in June compared to 2.5% in May.
  3. Healthier government finances: Improved tax collections, led by indirect          tax growth of 37.6% during April-July; lower subsidy bill due to falling oil            prices; expected savings may be around Rs 1 lakh crore.
  4. Inflation – both retail and wholesale – under control: Retail inflation                 estimated at 3.8% in July; wholesale inflation at -4.1%, the ninth straight           month of contraction.
  5. Better than expected monsoon rains: Deficit of around 11%, but                          distribution has been encouraging.6. Lower trade deficit: Due to a fall in            import bill for crude petroleum, gold.
  6. Current account deficit: Appears more manageable at 1.3% GDP in 2014-15       compared to 1.7% in 2013-14.
  7. Forex reserves: At a record $355 billion.
  8. Early signs of increase in investment.
  9. Healthy demand: In consumer sectors, uptick in consumption.

On the contrary, Dr. Ramaswamy pointed out to areas of concern such as:

  1. Sluggish credit growth. Growth in non-food bank credit off-take slowed to 8.4% in June 2015, compared with 13% in June 2014.2. High bank NPAs estimated at around 5.75% of gross assets.
  2. Falling exports. Declined 10.3% in July, eighth straight month of decline.
  3. Several companies have stressed balance sheets, particularly infrastructure firms.
  4. Low demand in construction sector.
  5. Falling rupee may impact FII inflows; slowing Chinese economy and possible rate hike by US Fed add to market fears.

The session ended with a very engaging and interesting interactive session with members.


Earlier during the event, members welcomed Mr. Brian Bendel, the new CIU Chief at the Consular Section in Chennai, while Mr. Brian Fox , Vice Consul, gave members an update on Visa related matters.