[ccebook.cn]The World in 2010

financial crisis.
The drought will raise food prices, adding to inflation. India is already the only big economy where consumer
prices are rising faster now than they were before the crisis. The price of pulses rose by 20% in the year to
August 28th; the price of sugar by 35%. That will force the Reserve Bank of India to tighten monetary policy.
Goldman Sachs expects it to raise rates by as much as three percentage points in 2010. Spending on drought
relief will also add to the government’s yawning fiscal deficit, which will exceed 10% of GDP this fiscal year, if
the budget gaps of the state governments are included.
The monsoon once decided India’s economic fate. Now it only influences it. Agriculture’s share of India’s
national output has dropped from 40% 30 years ago to 17% in 2009. Indeed, India’s economy is now on the
cusp of an historic transition. In 2010 agriculture will account for a smaller share of GDP than manufacturing:
India’s output of widgets will exceed its output of wheat, rice, cotton and the other fruits of the land. The
factory will surpass the farm.
Return to the glory days
That is not just because agriculture is poised to shrink. Manufacturing, which stagnated during the crisis,
should recover smartly in 2010. It was already growing by over 7% in July 2009, according to the index of
industrial production. Investment in new plant and machinery will get a boost from the return of foreign capital
inflows, some $44.1 billion in the year to March 2010 and $52.1 billion the following year, according to Rohini
Malkani of Citigroup. About 35-40% of those flows will be foreign direct investment.
India’s historians often hark back to the glory days of manufacturing in the 18th century, when Indian artisans
produced calicoes and other fabrics of such appeal that Britain’s spinners, weavers and printers clamoured
(successfully) for import bans to protect their livelihoods.
During Britain’s industrial revolution, however, Indian weavers were “thrown back on the soil”. India’s first
prime minister, Jawaharlal Nehru, wrote that India’s industrial destiny had been thwarted by imperial
economics. In 2010, thanks to a failure of the monsoon and a recovery of the world economy, India’s
agriculture will at last give way to its manufacturing prowess.
Simon Cox: South Asia business correspondent, The Economist
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