Indian economy better placed than China’s, says Roach

Stephen S Roach, chairman of Morgan Stanley Asia, expressed his optimism on the prospects for the Indian economy over that of China, saying that India has made a lot of improvement in recent years on the macro developments, especially with an increase in foreign direct investments, higher savings and improvement in infrastructure in the share of India in GDP.

“These improvements reinforce the long-standing accomplishments of India on the micro front—large collection of world-class competitive companies, well educated IT competent workforce, extraordinary entrepreneurs and innovators, well developed capital market, solid financial institutions, rule of law and democracy,” said Roach in a press conference, adding that what has been missing in this interplay between the micro and now the improved macro has been the political impetus to reforms, something it has hobbled your government in the last five years.

“India is a more balanced economy than the rest of export-led Asia,” Roach told reporters in Mumbai on Wednesday. In fact, for the first time, Roach is now more optimistic about prospects for India than China. “China faces major challenges for the first time in 30 years,” Roach said. “It pushed its export-led model too far, leaving it too dependent on the external climate.”

Roach noted that the recent election changes the prospects for reforms going forward and hopes that the new Congress-led government will be more effective in pushing the reforms forward on a number of fronts and will be much less hobbled by the politics of coalition management.

Talking about the growth forecast for the Indian economy, Roach said the growth would remain between 5.5-6.5% for now. Incidentally, Morgan Stanley on May 28 raised India’s growth forecast to 5.8% in the fiscal year to March 31, 2010, from an earlier estimate of 4.4%. The economic growth in the $1.2 trillion economy may turn out to be the real surprise in Asia, Roach said.

“The growth in the Indian economy cannot go beyond 8% in another 2-3 years time,” he said. Roach also noted that disinvestment is important for India to reduce its fiscal deficit.The fiscal deficit of India widened to a seven-year high of 6.2% in the fiscal to March 31 as government borrowed more to fund fiscal stimulus packages.
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