CommentsView/Create comment on this paragraphNEW DELHI  – To hear some people tell it, the bloom is off the Indian economic rose. Hailed  until recently as the next big success story, the country has lately been  assailed by bad news.

CommentsView/Create comment on this  paragraphTales abound of investor flight (mainly owing to a  retrospective tax law enacted this year to collect taxes from Indian companies’  foreign transactions); mounting inflation, as food and fuel prices rise; and  political infighting, which has delayed a new policy to permit foreign direct  investment in India’s retail-trade sector. Some have even declared that the  “India story” is over.

CommentsView/Create comment on this paragraphBut  today’s pessimism is as exaggerated as yesterday’s optimism was overblown. Even  as the world has faced an unprecedented global economic crisis and recession,  with most countries suffering negative growth rates in at least one quarter in  the last four years, India remains the world’s second-fastest-growing major  economy, after China.

CommentsView/Create comment on this paragraphMany  reasons have been cited for this success. India’s banks and financial  institutions were not tempted to buy mortgage-backed securities and engage in  the fancy derivatives trading that ruined several Western financial  institutions. And, though India’s merchandise exports registered declines of  about 30%, services exports continued to do well. Moreover, remittances from  overseas Indians remain robust, rising from $46.4 billion in 2008-2009 to $57.8  billion in 2010-2011, with the bulk coming from the blue-collar Indian  expatriate community in the Gulf.

CommentsView/Create comment on this paragraphFinally,  the external sector accounts for only about 20% of India’s GDP. Most of the  economy is a domestic affair: Indians producing goods and services for other  Indians to consume in India.

CommentsView/Create comment on this  paragraphThe Indian private sector is efficient and entrepreneurial,  and is compensating for the state’s inadequacies. (An old joke suggests that the  Indian economy grows at night, when the government is asleep.) India is good at  channeling domestic savings into productive investments, which is why it has  relied so much less on foreign direct investment, and is even exporting capital  to OECD countries, where it is well able to control and manage assets in  sophisticated financial markets. Indeed, India, home of Asia’s oldest stock  market and a thriving democracy, has the basic systems that it needs to operate  a twenty-first-century economy in an open and globalizing world.

CommentsView/Create comment on this paragraphThere are  other reasons for confidence that India will weather the storm. Not only does  India have considerable resources of its own to put towards investment; as the  persistence of global recession drives down returns in the West, foreign  investors will look anew at India.

CommentsView/Create comment on this  paragraphStill, many are inclined to compare India unfavorably with  China, so a few macroeconomic numbers are worth considering. Half of India’s  growth has come from private consumption, and less than 10% from external  demand; by contrast, 65% of China’s real GDP growth comes from exports, and only  25% from private consumption. China is thus far more vulnerable to external  shocks.

CommentsView/Create comment on this paragraphMoreover,  India has the highest household savings rate in Asia, at 32% of disposable  income. In fact, households account for 65% of India’s national annual savings,  compared to under 40% in China. Bad loans account for only 2% of Indian banks’  credit portfolios, versus 20% in China. And India’s workforce has been growing  at nearly 2% annually in the last decade, while China’s grew at less than  1%.

CommentsView/Create comment on this paragraphPutting  China aside, India’s economy grew by 6.5% in 2011-2012, with services up by 9%  and accounting for 58% of India’s GDP growth – a stabilizing factor when a world  in recession cannot afford to buy more manufactured goods.

CommentsView/Create comment on this paragraphMcKinsey & Company estimates that the Indian middle class will grow to 525 million by  2025, 1.5 times the projected size of the US middle class. According to last  year’s census, the country’s 247 million households, two-thirds of them rural,  reported a rise in the literacy rate to 74%, from 65% in 2001. In just the last  two years, 51,000 schools were opened and 680,000 teachers appointed.

CommentsView/Create comment on this  paragraphAn impressive 63% of Indians now have phones, up from just  9% a decade ago; 100 million new phone connections were established last year,  including 40 million in rural areas; and India now has 943.5 million telephone  connections. Nearly 60% of Indians have a bank account (indeed, more than 50  million new bank accounts have been opened in the last three years, mainly in  rural India).

CommentsView/Create comment on this paragraphSome  20,000 MW in additional power-generation capacity was added last year, with 3.5  million new electricity connections in rural India. As a result, 8,000 villages  got power for the first time last year, and 93% of Indians in towns and cities  now have at least some access to electricity.

CommentsView/Create comment on this paragraphThese  trends all augur well for India’s economic future. And they aren’t slowing:  India is looking for $1 trillion in infrastructure development over the next  five years, most of it in the form of public-private partnerships. This offers  hugely exciting opportunities to investors.

CommentsView/Create comment on this paragraphThe real  picture of dogged progress is far removed from the perception of a government  beset by inaction and policy paralysis. As Prime Minister Manmohan Singh  modestly put it: “I will be the first to say we need to do better. But let no  one doubt that we have achieved much.”

CommentsView/Create comment on this paragraphRead more from our “Will India’s Boom Go Bust?” Focal  Point.