Indian economy more balanced than China's

"The Indian economy is very different as private consumption is driving its growth."

This has to be music to the ears of India's economic administrators. India's economy is more balanced than China's and the country can sustain over 7 per cent growth for a long period of time, according to Stephen S Roach, managing director and chief economist of Morgan Stanley, and one of Wall Street's most influential economists.

In an exclusive interview with Business Standard, Roach said, "The Asian growth model is essentially flawed as it depends on exports and fixed investments. The Indian economy is very different as private consumption is driving its growth. Domestic private consumption accounts for 65 per cent of India's GDP, while it is only 42 per cent in China. It is an amazing story."

This is Roach's third trip to India over the last 18 months and he wants to come to India more often. After all, he has been to China 35 times over the last eight years.

On a four-day visit to India -- split between Mumbai and Delhi -- Roche met Prime Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Adviser to Finance Minister Parthasarathi Shome, Housing Development Finance Corporation chairman Deepak Parekh, Reliance Industries chairman Mukesh Ambani and the chiefs of quite a few Indian corporations and MNCs, including HLL, GE Caps, HSBC, Standard Chartered and McDonalds.

"Nine months ago, on my second trip to India, I was a bit disappointed and felt that the government was going slow on reforms. But this time, I am feeling more encouraged than I have ever been on the India growth story. There are very strong positive signs," said Roche.

According to him, India's "horrible" infrastructure is "getting better".

Similarly, foreign direct investment, too, has a long way to go. But all these not-so-positive factors have been more than balanced by the growth in private consumption.

"You have a long way to go....I also know that you are growing on a lower base. But the growth will be sustainable because it is balanced and led by internal factors. It is not dependent on exports,' he pointed out.

On the prospects of outsourcing and information technology-enabled services, Roche admitted that during his first visit to India, he had a bit of 'exaggerated' sense of the sector's role in the economy.

"It is a very small part of the economy. India needs to combine IT with its manufacturing strength. The IT-enabled services are not getting the kind of attention from the government which it should get," he said.

Roche described the stock market volatility as a 'healthy correction'. "The yield play by global investors in a market flush with liquidity will no longer be there. With interest rates going up, the days of carry trade are also over. The market will turn volatile and risky but fundamentally good stocks will continue to appreciate as the India story is now on a more stronger footing," he said.