In a Working Paper on the Indian economy the economists at Allianz Dresdner Economic Research predict that India will record average economic growth of 7.5 to 8.5 % up to 2015. The backcloth for a continuation of strong economic growth is promising, thanks mainly to structural factors: above all, domestic savings rose sharply at the beginning of the decade. At 30 % of GDP the Indian savings rate is now close that in East Asian countries. The favorable demographic development and the swiftly expanding middle class are also buoying the upward economic trend.
India: Close on China’s heels
Industrial production in India is gathering momentum. The manufacturing sector is nowrecording double-digit growth. This means that more and more people from the agricultural sector (where some 60 % of workers are still employed) are able to find work in industry and construction. Consequently, the industrial sector will play more of a role in bolstering economic growth in the future than it has done in the past.
On top of this comes the rapid evolution in the Indian financial sector. Financial intermediation is far more efficient than in many other emerging markets. The commercial banks are shifting their asset portfolios in favor of private borrowers and lending volume growth is currently outperforming growth in the economy as a whole. However, the fact that the real estate and stock markets are currently extremely overheated means that temporary setbacks are to be expected. A correction could temporarily knock 1-2 percentage points off economic growth, but will not impair the favorable long-term outlook.