India Ahoy: Lehman Brothers says India can grow at 10 per cent for next decade

Its report India: Everything to Play For, published on October 16, by the Firms senior economists, political analysts and strategists, presents an in-depth analysis of the structural reforms driving Indias growth, the factors which will determine whether that growth can be sustained or improved, and the broader financial market implications. According to the analysis, Indias equity market will outperform developed and emerging market indices over the next five years, and the Indian rupee will appreciate significantly against the US dollar.

Todays launch of the Firms landmark Indian economic report reflects the intense interest that global investors have in the worlds emerging economies, especially India, and it marks yet another milestone in the expansion of Lehman Brothers in Asia, commented Tarun Jotwani, Chairman and Chief Executive Officer, Lehman Brothers, India. India has learned a great deal from its structural policy reforms of the past decade; and we believe that these lessons will be carried forward, and built upon, in the coming years. We are confident in the economic and social future of India, and fully intend to play a large and growing part in its continued development.

The two-pronged approach of the report differentiates its findings from other recent studies. The report combines conventional static growth accounting analysis which gauges the contributions of labor, capital and multi-factor productivity to GDP growth - with an examination of the policies and reforms which have driven Indias growth acceleration to-date. According to the authors, static growth accounting analysis alone fails to adequately account for the dynamic interactions in the Indian economy.
The report concludes:

Indias rapid economic growth bears all the hallmarks of the economic take-off that took place in other large Asian economies in previous decades, such as China and South Korea, including rapidly rising GDP per capita, a high ratio of investment to GDP, and an increasingly open economy

While business continues to prove impressively adept at negotiating systemic and structural challenges, sustaining higher growth in the medium term will require continuing structural reform - in particular, removing constraints such as weak infrastructure, bureaucracy, and labor market rigidities

The liberalization of foreign trade and investment, and the rapid development of the financial sector are among the most important structural reforms

Further financial sector reforms could contribute 1 - 1 percentage points to long-term GDP growth, and boost net capital inflows from approximately US$38bn to over US$200bn within ten years.
India needs a faster and a more inclusive growth strategy to correct its inter- and intra-regional imbalances and avoid social unrest. Inclusive growth can be facilitated by further easing the shackles on business, by making education and health available to all of society and by developing the rural sector.

India: Everything to Play For is co-authored by Dr. John Llewellyn, senior economic policy advisor; Alastair Newton, senior political analyst; Robert N. Subbaraman, chief economist, Asia ex-Japan; and Sonal Varma, economist, India.

Founded in 1850, Lehman Brothers is a leading firm in equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity. The Firm is headquartered in New York, with regional headquarters in London and Tokyo, and operates in a network of offices around the world. It is one of the most coveted companies on premier Indian campuses like IIMs.