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Thursday, December 21, 2006

Growth 2007

Credit Suisse is forecasting 10% growth in India next year. They may be right, but my feeling is that it is more likely to be because of s shift into infrastructure than because of the consumer demand element:

India will overtake China next year as the world's fastest-growing major economy on rising consumer and government spending, Credit Suisse's chief Asia economist Dong Tao said.

Credit Suisse raised its 2007 growth forecast for India's $775 billion economy, Asia's fourth biggest, to 10 percent from 8.5 percent, Tao said. China's $2.2 trillion economy is expected to grow 9.9 percent next year from 10.4 percent in 2006, he said.

India had the highest average salary increase in the Asia- pacific region in 2006 gaining 13.8 percent in 2006 compared with 14.1 percent gain in 2005, according to human-resources consulting firm Hewitt Associates Inc. Salaries in India may rise by 12.3 percent to 15 percent in 2007.

``The private consumption story in India is growing,'' Credit Suisse's Tao said in a phone interview from Hong Kong today. ``At this moment, India surpassing China as the world's fastest growing major economy is a possibility. India is more resilient toward a global slowdown compared to China.''

India now wants to draw investments from Japan and narrow the gap in overseas funding with China, which began unshackling its economy in 1978, 13 years before India. India's northern neighbor got $60 billion of foreign direct investment in 2005 compared with India's $7.5 billion.

``Capacity additions in the steel, auto, metals and consumer goods sector seem to be gathering pace in response to strong consumer spending and a pick-up in public investment spending in the power, roads and highway sectors,'' Tao said.

Industries such as steel and cement are also benefiting from Prime Minister Singh's decision to increase spending on roads, ports and other infrastructure by a quarter to 992 billion rupees ($22 billion) in the year that started April 1 in a bid to attract overseas manufacturing companies and spur growth to 10 percent over a decade.

Surpassing China's expansion rate for the first time at least two decades may help lure the overseas investment India needs to replace dilapidated port and roads and create manufacturing jobs. Prime Minister Manmohan Singh needs rapid growth to lift 350 million people out of poverty in the world's second-most populous nation.

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