India could deliver growth

India has controlled inflation, which will help the country to deliver a strong gross domestic product (GDP) rate for the year, a specialist fund manager claims.

The inflation rate in India is currently at 5.24 per cent, which is close to the Reserve Bank of India’s ‘comfort level’ of between 3 to 4 per cent.

Olympus Funds Management managing director John Pereira said this could lead to a growth rate of between 7 to 8 per cent, which would be one of the highest in the world if achieved.

“India’s demographics remain the engine room of the economy, its growth puts it in an enviable position, inflation has abated and the economy is showing some resilience,” he said.

“The country’s huge internal demand and low reliance on exports means that it is less exposed to foreign GDPs than other emerging markets such as China and Russia.”

The service industry sector is contributing to India’s strong economy, growing at more than 10 per cent in recent months, Pereira said.

Other growth sectors include telecommunications. A record 10 million mobile phone subscribers were added in October while demand for wireless and broadband Internet use saw 28.44 million subscribers added during the September quarter, taking the total subscriber base to 353.66 million.

He said the Indian Government was also ensuring infrastructure spending remains strong during the next two years.

“Other attractive sectors for 2009 include energy and pharmaceuticals,” Pereira said.

“India’s growth rate alone set it apart from most of the world in 2009, but investors with allocations to India, or considering India, need to be thinking long term.”

India was affected by the global financial crisis and there was a significant withdrawal of foreign capital from the country, but Pereira expects that to return due to the strong economic growth.

The growth of bank lending during the period of April to November last year suggested India was only affected by liquidity constraints for a short period. Bank lending during this period rose by 76 per cent.

However, the sub-continent is not without challenges in the year ahead, which include the Satyam accounting scandal.

“These problems can occur in any country but India’s regulatory framework, corporate governance and transparency remain an advantage among emerging markets,” he said.

“We expect a strong response by the Government.”