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Last Updated: Tuesday, 6 February 2007, 12:52 GMT
India's economy 'nears $1 trillion'
By Andrew Walker
Economics correspondent, BBC News

Security guard at Tata office in Delhi
The Tata group has wide-ranging interests in India

If we needed a reminder of India's growing global economic presence, we had it last week in the steel industry when India's Tata won a stock market auction for the European company Corus.

The result of putting the two together will be the fifth-biggest steel producer in the world.

And it is an Indian-born entrepreneur, Lakshmi Mittal, who is the driving force behind the biggest of all in the industry, Arcelor Mittal.

That story is merely a recent news event that highlights India's rise. It is a much wider phenomenon.

Gerard Walsh, Regional Director for Asia at the Economist Intelligence Unit in London, says India is already close to being a $1 trillion economy.

And if you measure it using purchasing-power parities - an alternative to exchange rates which accounts for different price levels between countries - India is already the third-largest economy in the world, behind only the US and China.

Growing impact

Most economists expect India's recent relatively rapid growth - an annual average of about 7% over the last four years - to continue.

That alone would ensure the country would make a growing mark. But it has been a relatively closed economy, with barriers to foreign trade and investment.

Lakshmi Mittal
Lakshmi Mittal runs the world's largest steel company

Those barriers have been eased, but many remain. The government appears inclined to continue the liberalisation process - and that would make India's international integration proceed even more quickly.

The World Bank has done a recent study, called Dancing with Giants, looking at the implications of the rise of India and China.

Alan Winters, one of the authors, says that for the most part, India's rise is good news for the rest of us.

India's economic growth generates more of the goods it produces and others buy - and that will tend to push prices down.

Competition

But there may be some adverse consequences. Demand for raw materials from growing Indian industry will create upward pressure on those prices.

That's also true for oil, although Mr Winters emphasises that India is a small part of what will determine the global energy prices.

Indian pharmacy workers check Ranbaxy drugs
Ranbaxy is an Indian drugs firm with global reach

In addition, the increased competition as India produces more goods and services might hurt other countries in South Asia, especially in the textiles and clothing business.

That is an industry where low costs are one of the keys to success.

The same is true of another sector where India is already a big presence on the world stage - medicines.

India's biggest is Ranbaxy, a name we will probably hear more of in the future.

The company's chief executive, Malvinder Mohan Singh, says that 80% of revenue comes from international markets and just 20% from India.

It divides half and half between developed- and developing-country markets.

More sophisticated

Ranbaxy is a company that makes so-called generic medicines, cheap copies of drugs developed by others. But Mr Singh says they have ambitions to develop their own patented therapies.

It would be a move into an area that requires more high-level expertise, and that is a characteristic of other areas of India business life - notably computer software.

Woman scavenges rubbish from a municipal dump in India's Tripura state
Poverty levels are still high in India

The low-cost, high-volume manufacturing will continue - at Ranbaxy and in other Indian industries - but a more sophisticated side is emerging.

Nonetheless, there is much in India that remains pretty basic. Poverty is deep and widespread. It is a matter of controversy whether India's economic growth has helped or not.

Some, including Indu Prakash Singh of Actionaid in Delhi, say the rich and middle classes have benefited, but the poor have not.

He says there have been many cases of poor people being displaced from urban areas in the name of development to areas where they have no housing and no livelihood.

The World Bank's Mr Winters agrees that the wealthy and middle-class clearly have gained.

But he also says the data suggests that the distribution of income hasn't changed much, so the poor are benefiting from India's economic growth. He says there is no reason why they should not continue to do so.




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