India’s Prime Minister outlines the country’s growth plans – could Coca Cola help mitigate the effects of a poor monsoon?
Dramatic intervention has been proposed after India experienced first quarter growth of 5.3 percent, its slowest pace in nine years. The twelfth five-year plan aims to increase growth to 8.5 – 9 percent.
Prime Minister Manmohan Singh’s speech on India’s Independence Day, laid out a blueprint for development. He denied that a 31 percent shortfall in this year’s monsoon rains would dramatically reduce growth and demand in agricultural areas; the government has taken measures to control price inflation by distributing seed and diesel subsidies. He stated his belief that the country’s expansion was being hindered by external and domestic factors: “Last year, our GDP grew by 6.5 percent. This year, we hope to do a little better.”
Although capital controls prohibit all foreign transactions unless explicitly permitted, stable and productive corporate investment is encouraged
Singh said he intended to expand on the UPA government’s Rajiv Gandhi Rural Electrification Scheme, by which more than 100,000 villages had been served with electricity connections. “Our next target is to provide electricity to each and every household in our country in the next five years and to also improve the supply of electricity,” he declared.
The government plans to create 25 million new jobs by investing heavily in higher education and vocational training. It intends to move away from the declining agricultural sector and towards services and manufacturing, which it believes have more growth potential.
A representative of the National Development Council revealed details from the twelfth five-year plan to the Hindustan Times. He said they aimed to create 2m more seats in universities (double that of the 11th, 2007-12 plan). Quality is valued as much as quantity, so financial incentives would be offered to colleges and universities for high-calibre research and results.
The council would also invest in vocational training through the proposed National Skill Development Authority, a measure that has been trialed in five states already. Private sector collaboration on training for the employed and the unemployed has begun in Gujarat, Karnataka and Tamil Nadu. If and when the Prime Minister approves the plan in September, the Council will start official consultation in October.
Singh also announced the Rajiv Housing Loan Scheme, under which those residing in economically deprived urban areas would receive reduced interest on housing loans. Any loans of less than Rs. five lakh would qualify for the scheme.
Economists and investors
A number of Indian economists are pessimistic, though, about the effects of the sub-par monsoon. Citi India economist Rohini Malkani reportedly wrote, in a note to investors, that a poor monsoon could reduce growth to 5.6 – 6 percent. He believes it could cause inflation and impact India’s deficit, as well as reducing agricultural output. Government spending on allaying the potential crisis in supply would be augmented by reduced revenue collections. Rural spending on farming equipment and commodities, presently a key driver of the economy, would fall too. Everything depends, he asserted, on global demand for commodities and relative inflation levels.
Another barrier to progress is a level of institutional corruption, that the government is trying to combat with the Lokpal Bill. Recent CAG reports on coal block allocation, power and Delhi airport indicate cross-party abuse of official positions: so far the bill has not gained universal approval. Lawyer Prashant Bhushan is quoted as saying the CAG report on Delhi airport showed that ‘public-private-partnership’ often translates as using public resources and assets for private profits. Coal blocks were allocated to private companies while officials pocketed the proceeds.
Fortunately, there are other potential sources of revenue. Foreign investors like Coca Cola and data storage vendor Netapp are planning to expand their share of the Indian market.
The government is trying to open some bureaucratic barriers to foreigners. Although capital controls prohibit all foreign transactions unless explicitly permitted, stable and productive corporate investment is encouraged. The third IGC-ISI India Development Policy Conference July 2012, between the International Growth Centre and Indian Statistical Institute, emphasized the ‘role of foreign investors’ in one of its strategic reports.
Coca-Cola has announced it will invest $5bn over a five-year period – $3bn more than it had previously stated. It was probably influenced by a jump in sales in Q1 of 2012, a 20% increase on the same time last year. The company is planning to increase its sales of Coke, which still trail behind Pepsico’s Pepsi. Thums Up and Sprite, though, are reportedly among India’s favourite drinks.
Netapp intends to target a number of software branches, including private and public cloud, desktop virtualisation, metadata, backup and archival. It is already involved in several airport surveillance projects, and now plans to take a stake in the high-performance computing industry. Because at present 60 percent of its customer base is in SMB, it aims to now target the government sector and India’s larger corporations.
While it is by no means inevitable that Prime Minister Singh’s reforms will increase growth in India, he is not the only one optimistic about the country’s prospects. The World Bank in June nominally raised India’s growth forecast to 6.9 percent, against last year’s prediction of 6.8 percent.