India ‘Waking Up’ to Extended Period of High Growth, UBS Says

By Kartik Goyal

Sept. 22 (Bloomberg) -- India may be “waking up” to an extended period of high-trend economic expansion that will cause incomes to triple over the next decade, according to UBS AG.

“India is about to resume an extended period of high economic growth,” Philip Wyatt, a senior economist at UBS in Hong Kong, said in a report today. The pace of expansion may average about 8.6 percent annually over the next 10 to 15 years.

Faster growth is crucial to Prime Minister Manmohan Singh’s goal of cutting poverty in a nation where three quarters of the population of 1.2 billion live on less than $2 a day. Singh, who won a second five-year term in May, has said that India needs a sustained expansion rate of 9 percent to improve the livelihoods of the poor and create more jobs.

A higher savings rate, helped by a younger population and export-led industrialization are among the main factors that will drive a sustainable step-up in economic growth, UBS said.

“We think the stage is set for rising manufactured exports and industrialization, possibly explosively, over the next 10 to 15 years as India takes some export share away from China’s overarching dominance,” Wyatt said.

Companies including Volkswagen AG, Toyota Motor Corp. and other car manufacturers have announced plans to spend more than $6 billion through 2012 to build factories in India.

Suzuki Motor Corp., Hyundai Motor Co. and Nissan Motor Co. are making India a hub for overseas sales, helped by cheaper labor and a surging domestic market.

Exports Double

Maruti Suzuki India Ltd.’s exports more than doubled to 79,860 units this year. The company aims to ship 130,000 vehicles in the year to March, 86 percent more than last year, according to Chairman R.C. Bhargava.

A younger population will also drive growth, Wyatt said. “The dependency ratio continues to drop and has at least another 10 years worth of distance to go before flattening out like Japan in the 1960s or Korea in the 1970s,” he said.

India’s per capita income may triple in the next ten years and rise by about 5 times by 2025 to well over $10,000 from the present $3,000, Wyatt wrote. Higher incomes will result in higher consumption for items like steel, cement and oil, he said.

“If we take individual commodities like steel, cement and oil we can observe that India is entering the zone of accelerating consumption per capita,” according to UBS.

India’s $1.2 trillion economy expanded 6.7 percent in the year to March 2009. That compares with an average growth rate of about 8.8 percent in the previous five years.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net