Hamish Fletcher

Business reporter for the NZ Herald

India's economic boom losing steam

Levi jeans, smartphones and American fast food - these are the goods now prized in India, a country once lauded for its silks and spices.

They are the badge of the rising middle class in Asia's third-biggest economy, who are being rocketed into a world of apparent luxury after a 20-year consumption boom.

But although this socially mobile class has helped lead the country's transformation since market reforms in 1991, its shiny veneer masks rising anxiety about India's economic health.

India's most recent growth data - which has GDP growing at an annual rate of 5.3 per cent - is the worst in nine years and accusations are flying that the country's "bubble of complacency" is now being popped.

Compared with the West's stagnation, this growth appears reassuring, but it is below expectations and seen as far behind what India needs to punch its weight in the global economy.

Growth was not even this subdued during the 2008 financial crisis and as the Economist points out, this is in a subcontinent that is "meant to grow in its sleep - regardless of what happens in the rest of the world".

Feeding sentiments of doom and gloom is India's tumbling currency; the rupee hit record lows last month against the US dollar, pushing up the price of precious imported oil.

Commentators are now queuing up to ask the question: have the growth rates that radically refashioned India over the past 20 years finally come to an end?

While disappointment over failed growth targets is commonplace in a stuttering world economy, analysts are blaming the slowdown on poor management by the Indian Government rather than the ongoing woes of the eurozone.

Columnists have pilloried the governing United Progressive Alliance coalition for its alleged ineptitude.

In an opinion piece for Bloomberg this week, New Delhi writer Chandrahas Choudhury argued the Government was in "policy paralysis" and had failed to open up India to foreign investment .

An editorial from the Economist this week toed a similar line: "The state is borrowing too much, crowding out private firms and keeping inflation high ... graft, confusion and red tape have infuriated domestic businesses and harmed investment."

The view on the street is just as unsympathetic. Nearly all who the Herald interviewed, from students to business executives to shop owners, believed their rulers were asleep at the wheel. Tales of crony capitalism and politicians pilfering the public purse fill the media.

In the absence of definitive political leadership, India's hopes may well be pinned to the private sector.

In Bangalore - India's IT capital - the country's future is seen as inseparable from its technology industry, the enclave of the ambitious, the talented and the middle-class.

This sector is, at least in part, responding to the call to step up.

Technology and consultancy giant Infosys employs close to 150,000 people and hopes to take on tens of thousands more this year.

The company is attempting to strengthen the sector's foundations through education and community programmes. One of its initiatives, Campus Connect, works with more than 400 engineering colleges to improve the employability of students and "make a difference" to the IT ecosystem.

"In 2005 [a survey] said only 25 per cent of graduates are employable ... our intent is to raise the industry readiness of the students coming so that the Indian IT industry can grow," said Srikantan Moorthy, a senior vice-president at the company.

But even companies in a booming technology sector suffer growing pains. In April, Infosys' share price fell the most in almost three years after sales forecasts for the coming year missed analyst estimates.

And you don't have to walk far out of Infosys' gates to find a very different world from the one inside its comfortable 17ha campus.

Bangalore suffers from infrastructure problems - power cuts are frequent and concerns were mounting last month that inadequate drainage would lead to another year of flooding during the monsoon season.

With inflation climbing to 7.23 per cent for the year to April, rising construction costs in one city pushed up the price of property by 16 per cent for the first quarter of this year.

It will be the marginally employed or jobless who will hurt most if this trend continues and the economy continues to slow.

The poor will suffer, but even those lucky enough to rank themselves amongst India's celebrated middle classes will not be immune.

- Additional reporting: Bloomberg.

NZ hoping to double exports to India by 2015

New Zealand hopes to double its exports to India by 2015 but will not be immune to the potential slowdown in the sub-continent's economy.

Commodities, such as coal, logs and dairy products accounted for the bulk of the $885 million of New Zealand goods shipped to India in 2011.

Trade Commissioner in New Delhi Richard White said while appetite for these goods remains strong, New Zealand Trade and Enterprise (NZTE) is now focused on promoting the country's high-tech and manufacturing products.

"One example is Agritech," White said. "As the [Indian] dairy, farming and horticultural sectors try to modernise and become more productive our technologies can help them.

"There's a real hunger for new technologies to help local production become more efficient ... they're increasingly looking out to world-leaders like New Zealand to help them with that," White said.

With the addition of increasing New Zealand links with India's technology sector, White said NZTE hoped to more than double the value of exports to the region in the next three years.

"We've got a New Zealand strategy for India ... from a trade perspective, we've got a specific goal to grow our merchandise exports to $2 billion by 2015," he said.

White said this target was ambitious and would be reliant on New Zealand securing a free trade agreement with Asia's third biggest economy. The eighth round of negotiations in this agreement are due to take place this month.

In its absence, White said both NZTE and exporters needed to just "get on with the job".

"There are new deals being done every month, so while that target in itself might be reliant on a successful FTA, we're going to get growth with or without that, no question," he said.

A number of New Zealand companies have already forged successful links in India.

Fisher & Paykel Appliances launched into the sub-continent earlier this year, with a plan to enlist New Zealand cricketers and Bollywood celebrities to promote its brand. Rather than selling product through retailers, F&P Appliances has secured a local distributor and is focusing on the "built-in" market - working with architects and property developers to fit out newly constructed apartment complexes with high-end F&P kitchen appliances.

It is a similar strategy to the one F&P has been using in China.

Tauranga-based technology company Pingar also took a foothold in the Indian market this year by signing a partnership agreement with a major software firm.

Infosys assisted with travel costs to and from Bangalore.

India
Population * 1.2b
Labour force 487.6m
GDP US$4.5t
Unemployment 9.8 %
Inflation 6.8%
Exports US$298.2b
Imports US$451b

NZ exports to India
Coal $324.6m (36.7%)
Logs $195.2m (22.1%)
Dairy products $88.1m (10%)
Machinery $36.8m (4.2%)
Wool $44.1m (4.8%)
Aluminium $19.7m (2.2%)
Scrap metal $19m (2.1%)
Apples $15.1m (1.7%)
Hides and skins $11.3m (1.3%)
Waste paper $11.9m (1.3%)
Total $884.9m

Source: Statistics NZ, 12 months to June 2011, CIA World Factbook, 2011 estimate except *

- NZ Herald

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