India's economy to outperform if relations with Pakistan not derailed
Saturday, 6 December 2008
India's economy may outperform expectations as long as relations with neighbouring Pakistan aren't derailed by last week's terrorist attacks on Mumbai, said Jim O'Neill, chief economist at Goldman Sachs Group Inc.
"So long as Indian and Pakistani policy makers don't do really silly things, India is in a position to start doing better than people think it might do,'' said O'Neill, who in 2001 coined the acronym BRIC from the initials of the four big emerging economies of Brazil, Russia, India and China.
India's foreign ministry on Monday blamed Pakistani "elements'' for the shooting and bombings in Mumbai and told its neighbour to match its words of cooperation with "strong action'' to build a "qualitative new relationship.''
India stopped short of accusing the Pakistan government of complicity, which may help ease tensions between the two nuclear-armed rivals. India's economic growth slowed to an 11- year low in 2003 as the neighbours placed 1 million troops on their shared border for six months following a terrorist attack on India's parliament in New Delhi.
"Relations between the countries have come to a level of maturity now and such incidents won't hurt relations,'' said Monis Ahmer, head of the international relations department at Karachi University. "There are some elements, such as terrorist organisations, extremists and the smuggling gangs that dislike the peace and joint cooperation between two countries.''
The attacks on luxury hotels, a railway station, a cafe and a Jewish Center in the financial capital of Mumbai on Nov. 26 killed 195 people, making it the worst terrorist strike in India in 15 years.
It came four days after President Asif Ali Zardari called for improved economic and political ties with India and said Pakistan won't be the first country to use a nuclear weapon in any conflict with India.
"I don't feel threatened by India and India shouldn't feel threatened by us,'' Zardari said in a videoconference at an event in New Delhi on Nov. 22.
India and Pakistan have fought three wars since independence from Britain in 1947 and have been seeking to improve ties in the past five years after coming close to a fourth conflict in 2002.
Two of the wars were over control of the Himalayan territory of Jammu and Kashmir, the only Muslim-dominated province in India.
Zardari said the impulse for reaching an accord on Kashmir, divided between the neighbours and claimed by both, should come from the people and politicians. He said the need for a visa to cross the border could be scrapped and that an "e-card swipe'' would suffice.
"What really interests me about the whole of this, is that this attack came at the end of a week where Pakistan was making the most powerfully positive noises toward rapprochement with India that I have seen in a long time,'' London-based O'Neill said. "I worry whether the attacks were motivated partly to derail some of the momentum from the Pakistani proposals. Hopefully they won't.''
The outlawed Lashkar-i-Taiba, a Kashmiri guerilla group alleged to have carried out the attacks, still operates training camps for militants inside Pakistan and has expanded its membership, the Washington Post reported, citing Michael Scheuer, a former Central Intelligence Agency analyst.
Ajmal Amir Kasab, the only suspected terrorist caught by the police, told interrogators that 24 people were trained in Pakistan over the course of a year, 10 of whom were picked for the Mumbai operation, the Times of India reported Nov. 30, citing unidentified people.
O'Neill said the fact that the Bombay Stock Exchange's stock index rose on the first trading day after the attacks showed there was no "panic'' among investors.
"It's not going to have any long-term impact on business in India,'' said Karl Slym, managing director of the Indian unit of General Motors Corp., the largest U.S. automaker. "We have a billion-dollar investment. We had a new plant that just opened a couple of months ago. We continue to ramp up that new plant and other investments as well for India.''
O'Neill said the drop in global crude oil prices "is really important positive news'' for India, which imports three- quarters of its oil needs.
Falling oil prices have helped slow India's inflation to 8.84 percent from a 16-year high of 12.42 percent in less than three months. That may result in more "aggressive'' interest- rate cuts by the central bank, said Sonal Varma, an economist at Nomura International Plc in Mumbai.
The decline in energy prices prompted Minister Palaniappan Chidambaram, who was moved to the home ministry yesterday from finance to tackle internal security, to say last month that growth in India will "bounce back'' to 9 percent next year from as low as 7 percent in the year ending March 31.
"If India can stop worrying about its constant coalition politics and do some things to stimulate investments including attracting more foreign direct investments both in finance and elsewhere, I think India could easily start to do better soon,'' O'Neill said. "India's basic framework means it's much more resilient to global de-leveraging than everywhere else including China.''
Indian commercial lenders have just $1 billion of sub-prime loans in the U.S. out of a total loan portfolio of $510 billion, according to the central bank.
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Bloomberg
"So long as Indian and Pakistani policy makers don't do really silly things, India is in a position to start doing better than people think it might do,'' said O'Neill, who in 2001 coined the acronym BRIC from the initials of the four big emerging economies of Brazil, Russia, India and China.
India's foreign ministry on Monday blamed Pakistani "elements'' for the shooting and bombings in Mumbai and told its neighbour to match its words of cooperation with "strong action'' to build a "qualitative new relationship.''
India stopped short of accusing the Pakistan government of complicity, which may help ease tensions between the two nuclear-armed rivals. India's economic growth slowed to an 11- year low in 2003 as the neighbours placed 1 million troops on their shared border for six months following a terrorist attack on India's parliament in New Delhi.
"Relations between the countries have come to a level of maturity now and such incidents won't hurt relations,'' said Monis Ahmer, head of the international relations department at Karachi University. "There are some elements, such as terrorist organisations, extremists and the smuggling gangs that dislike the peace and joint cooperation between two countries.''
The attacks on luxury hotels, a railway station, a cafe and a Jewish Center in the financial capital of Mumbai on Nov. 26 killed 195 people, making it the worst terrorist strike in India in 15 years.
It came four days after President Asif Ali Zardari called for improved economic and political ties with India and said Pakistan won't be the first country to use a nuclear weapon in any conflict with India.
"I don't feel threatened by India and India shouldn't feel threatened by us,'' Zardari said in a videoconference at an event in New Delhi on Nov. 22.
India and Pakistan have fought three wars since independence from Britain in 1947 and have been seeking to improve ties in the past five years after coming close to a fourth conflict in 2002.
Two of the wars were over control of the Himalayan territory of Jammu and Kashmir, the only Muslim-dominated province in India.
Zardari said the impulse for reaching an accord on Kashmir, divided between the neighbours and claimed by both, should come from the people and politicians. He said the need for a visa to cross the border could be scrapped and that an "e-card swipe'' would suffice.
"What really interests me about the whole of this, is that this attack came at the end of a week where Pakistan was making the most powerfully positive noises toward rapprochement with India that I have seen in a long time,'' London-based O'Neill said. "I worry whether the attacks were motivated partly to derail some of the momentum from the Pakistani proposals. Hopefully they won't.''
The outlawed Lashkar-i-Taiba, a Kashmiri guerilla group alleged to have carried out the attacks, still operates training camps for militants inside Pakistan and has expanded its membership, the Washington Post reported, citing Michael Scheuer, a former Central Intelligence Agency analyst.
Ajmal Amir Kasab, the only suspected terrorist caught by the police, told interrogators that 24 people were trained in Pakistan over the course of a year, 10 of whom were picked for the Mumbai operation, the Times of India reported Nov. 30, citing unidentified people.
O'Neill said the fact that the Bombay Stock Exchange's stock index rose on the first trading day after the attacks showed there was no "panic'' among investors.
"It's not going to have any long-term impact on business in India,'' said Karl Slym, managing director of the Indian unit of General Motors Corp., the largest U.S. automaker. "We have a billion-dollar investment. We had a new plant that just opened a couple of months ago. We continue to ramp up that new plant and other investments as well for India.''
O'Neill said the drop in global crude oil prices "is really important positive news'' for India, which imports three- quarters of its oil needs.
Falling oil prices have helped slow India's inflation to 8.84 percent from a 16-year high of 12.42 percent in less than three months. That may result in more "aggressive'' interest- rate cuts by the central bank, said Sonal Varma, an economist at Nomura International Plc in Mumbai.
The decline in energy prices prompted Minister Palaniappan Chidambaram, who was moved to the home ministry yesterday from finance to tackle internal security, to say last month that growth in India will "bounce back'' to 9 percent next year from as low as 7 percent in the year ending March 31.
"If India can stop worrying about its constant coalition politics and do some things to stimulate investments including attracting more foreign direct investments both in finance and elsewhere, I think India could easily start to do better soon,'' O'Neill said. "India's basic framework means it's much more resilient to global de-leveraging than everywhere else including China.''
Indian commercial lenders have just $1 billion of sub-prime loans in the U.S. out of a total loan portfolio of $510 billion, according to the central bank.
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Bloomberg