Hot spots: India.(International Section)

With most of the world's attention still focused on the explosive growth of China, it is easy to overlook that India is rapidly becoming one of the most interesting markets in Asia. The country is well worth more attention than it has been getting. The expansion of the economy is now accelerating so strongly that it will this year easily surpass official projections by a substantial margin. Real gross domestic product gained by an impressive 5.7% in the quarter that ended on June 30, following an advance by 4.9% in the first three months of this year. Government officials now say that for the fiscal year which ends next March 31 growth will "significantly exceed" the 6.0% they had prognosticated earlier, and could approach 8.0%.

Annual growth of 8% is what official planners are aiming for, what they believe is needed to lift 400 million people out of poverty and narrow the income gap with long-time rival China. Thanks to a good monsoon, a record harvest is about to lift rural incomes and spending. Structural reforms are making their beneficial influence felt and are driving consumption and investment. Above all, interest rates have been halved over the past five years, with the Central Bank's benchmark rate having been slashed to 6% from 12%. Interest costs are now at their lowest in three decades, and this is encouraging consumers to borrow and companies to invest.

India today has an expanding middle class that is already 250-300 million strong. It has become the world's fastest-growing telecom market, with more than a million new mobile phone subscriptions sold every month. Banks are making upwards of USD 15 billion a year in new home loans. And India is seeing the emergence of new companies capable of competing with any in the world. They work not only in traditionally strong sectors such as information technology and pharmaceuticals, but produce cars, automotive parts, motorcycles (of which Indians buy about 10,000 every day), cement, and steel.

Foreign institutional investors have poured close to USD 5 billion into Indian financial markets so far this year, which is already more than six times the total for all of 2002 (USD 763 million). The heavy inflow has helped the Bombay Stock Exchange's benchmark Sensitive Index to climb by over 50% since April, to a three-year high. India is, thus, increasingly forging ahead of East Asia's traditional "tiger economies," such as South Korea, and is becoming, next to China, the second growth engine pulling much of the region along. Some economists already say that within a few years India will begin to outperform China. On present trends, such a statement, though still a bit far-fetched, no longer sounds quite as outlandish as it once did.

One does need to keep in mind that many of the factors that held India back in the past have not yet completely disappeared. There are good reasons why most of the money flowing into India from abroad is of the portfolio variety, not direct, brick-&-mortar investment. Improvements notwithstanding, the Indian bureaucracy is still a horror to deal with. There are glaring shortfalls in infrastructure, especially in the power sector. Agriculture ...