The Hindu Business Line : `If India has big plans, global money is available'

"It takes longer for India to get things done. I think if the government does come up with a big programme, the money is readily available." MR ANDY XIE, MANAGING DIRECTOR, MORGAN STANLEY

"It takes longer for India to get things done. I think if the government does come up with a big programme, the money is readily available." - MR ANDY XIE, MANAGING DIRECTOR, MORGAN STANLEY

At a time when the Indian equity market is facing a crisis of confidence, Morgan Stanley has come out with a report that reiterates India's inherent economic strengths.

The report, "New Tigers of Asia," states that India, along with China, holds the key to the future of the world's economy. The authors, Executive Director and India Economist of JM Morgan Stanley, Mr Chetan Ahya, and Managing Director of Morgan Stanley, Mr Andy Xie, discuss the report.

Excerpts from an interview given to CNBC-TV18:

Can you state briefly what is the argument in this report?

Chetan Ahya (CA): We are highlighting the long-term growth story for India and China and this is something we had done two years back as well — trying to compare two economies.

Having said that, in this report, we are trying to focus more on the challenges.

We think both the countries are at a critical juncture and they need to take certain difficult steps right now, to ensure that the strong growth momentum that they have seen recently continues into future as well.

Essentially, the focus of the report in that sense is on the challenges that the two countries are facing.

Do you think in the second round of the power or infrastructure or roadway reforms, India's success is more assured even politically?

CA: I think there is definitely a change in the mindset of the policymakers and we see a lot of improvement in the infrastructure spending already. But let me put these numbers in perspective — for India, there is a change but where it needs to be is a big gap.

China spent $65 billion on roads last year. India is planning to spend $38 billion by 2012 from now on.

There is just no comparison; I think there is a huge gap between the two. Even in other sectors, there is a similar trend. If one looks at the total spending of infrastructure in China, it is about $200 billion in 2005 and India spent $28 billion. So the gap is just too huge for us to be in this slow mode of change.

Do you see this infrastructure problem getting solved in India?

Andy Xie (AX): I think the money involved right now is not an issue. The issue is political. I think India has a complicated system compared to China. China is very much dominated by the government. It takes longer for India to get things done.

I think if the government does come up with a big programme, the money is readily available around the world. India's future is so bright and they would fund something that is so productive. I think a lot of people would be eager to do that.

"There is an improvement in the infrastructure spending in India, but there is a huge gap between the two (India and China). " - MR CHETAN AHYA, EXECUTIVE DIRECTOR, JM MORGAN STANLEY

What kind of growth rates can you predict, given that infrastructure constraints are going to be there for a couple of years?

CA: We're forecasting 6.5-7 per cent over the next two years and that is compared to 8 per cent seen recently. So we are seeing a moderation on account of capacity constraints.

This is a decent growth, but it is different from where the market expectations are. If one meets policymakers in Delhi, everybody is saying 8 per cent is a given So, there is going to be a big expectation shock from that perspective.

Isn't the surplus it is generating internally enough to ensure that the infrastructure growth will be better than ever before?

AX: I agree that infrastructure has been growing better than before. We also see private sector companies being very entrepreneurial in overcoming these problems.

For example, software-outsourcing companies were able to identify locations, which still have some infrastructure surplus capacities, and they would move their offices there for expansions. If other companies also keep doing that, at some point, one has to worry that there will be no infrastructure left for them to expand. So they have to slow down. This is something that we worry about.

How do you see the future panning out? Do you think that the asset bubble is about to break when the world realises that this is a 6.5 per cent and not an 8 per cent economy?

AX: I think India's situation is related to global liquidity. Its own story is important but at the same time, the liquidity factor also.

That depends very much on the inflation in the US. My hunch is that inflation is picking up in the US as well as around the world.

It could basically cause liquidity to dry up, which I think would have a substantial effect on India.

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