The story of 7%

Since two years I have been hearing numerous discussion and reading innumerable articles about India’s GDP growing at 7% and wondered why the fuss about a measly 7%.  I remember all the punters, economists & so called respected mutual fund manager claiming at the begining of Year 2011 that it was a great time to buy into Indian stocks and that we were growing at 7% and possibly will touch 7.5 % etc. They gave a number of stocks to put on the buy list and some even dared to predict, come end of Dec 2011 Sensex would touch 22k ! 🙂

Jump through to Dec 2011 – Sensex stands at 15K, many a buy calls especially those belonging to the airline industries stocks have fallen flat, airline companies stand on a huge pile of accumulated losses if not at the door step of bankruptcy. The magic 7% seems to be fading to 6.5 % or so and a kg of bananas has been costing me Re 2 more week on week ! The shopkeeper seemed stunned on my questioning him about raising prices when the PM had said inflation was supposed to wane ! 😉 Btw I have a high regard for Mr. Manmoham Singh, personally I feel he is the best brain available to fix the situation we are in, if only people wud let him run the country.

 Coming back to the magic 7% I never understood the fuss about it. Yes, it meant that India was supposed to prosper but what was it with this 7% that grabbed so much attention ?? The revelation came when I was fortunate enough to hear Mr. Mohandas Pai , former HR Head of Infosys, speak at an award function that my dad and his other colleagues had won. Mr Pai spoke about a lot of things and it really impressed me, but what caught my ear was this 7% that he spoke about. He said that this 7% growth meant that India would double its economy in the coming decade and that would mean, India growing as much in the coming decade as it did in the past six decades or so !

On hearing him, lo ! to my surprise, it stuck in my head that it all boiled down to simple 5th – 7th standard airthmetic, Compound Interest !

the calculation would go as forth, assume India grows at 7% for the coming decade, India today is a 1 trillion economy

Principal P = 1 trillion  — Rate of Growth G = 7%  —- Time period T = 10 years

Simple compund interest formula =>

A (Indian Economy after a decade from now) = P*(1 + G/100)^T

                                                                               = 1 trillion * ( 1 + 7/100)^10

                                                                               = 1 trillion * 1.96

       India after 10 years hence = 1.96 trillion ~ 2 trillion !!! or rather twice the current size !

Just imagine the tremendous pace of growth this implies, all the past six decade growth squeezed into the coming decade ! Seems like we are in for an exciting times ahead !

To put the figures into perspective,

US stands at 14 trillion mark currently

 Japan at 5 trillion

China at 4 trillion

France, United Kingdom, Italy at approximately 2 trillion each

The question though is will the 7% story continue for another decade ? Will growth be inclusive for all section of the society and not the servant of a fortunate few. Corruption & petty politcs will of course be the villans in the story.

Will the 7% story still be victorious in face of all odds is something we will need to wait and watch !


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