Friday, January 30, 2009

The Growth Drivers

The following are the result of a class discussion. So i thank Ashok, Prasanna, Vijay, Francis and JK for chipping in. Also, our faculty for holding it.

We all know that the next growth driver for our economy, as touted by experts, is the finance sector. Well i had the same feeling. And was pretty much firm with them until i had this discussion. The Indian Financial Sector is expected to fuel the economy at 9%. Its the availability of smart man power and a government that supports the cause, that would have helped the sector boom.

All the steps taken before the Global Financial Meltdown, pointed in the same direction. The government was taking all steps to make Mumbai the next hub for the globe.

With the meltdown in place, the priority of the government changed. However, even the articles that were claiming the sectors as growth drivers stopped getting published. It was as if the whole world had gone wrong!!

Anyways, the faculty took a different standing. He said that financial sector cannot be the next growth driver. Rather it should never be!! 

His funda was clear. That for an economy to grow continuously, the growth should come from primary and secondary sectors. The growth should be in real terms. Tangible, hard products should be added to the economy.

The financial sector just grows on the books and in the banking systems (95% of money is E-money across the globe), in reality hardly any tangible stuff is added to the economy. And the example of US of A fitted in just right. The US economy that has been growing on the back of the financial muscle, has been adding the deficit of the budget and the unfavorable balance of trade, unchecked. The fact that dollar is the preferred currency for foreign trade across the globe makes it possible for the US to do so, too.

But then India is not so lucky. The INR is still used domestically and this will not allow the government to print as many bills as it wants. And therefore, the Indian growth will have to come from primary & secondary sectors.

Would like to know your take on this.

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