Imagine if prices weren't burning a hole in your pocket, the interest rate on the loans you took were falling, savings options were getting wider, finding new jobs was easy, profits and sales of you business were zooming...

If all this seems like a dream, hold your breath. You may be living it. The rich smell of an economic recovery is spreading far and wide in the economy. Inflation has been tamed. Consumer prices are growing at a much lower rate than salaries. Interest rates are down and banks are chasing people to avail of loans. Companies are posting spectacular sales and profits. The job market is reviving, stock markets are upbeat and even the rain gods have been gracious. The spread and timing of monsoons so far are the best in six years. Are we entering a prolonged period of prosperity or is it yet another false start to the economic engine?

To find out which way the country's-and people's-economic fortunes are headed, India Today called a meeting of its think tank: the Board of India Today Economists (BITE). It also reached out to CEOs and investors to get a feel from the ground. The verdict: the economy has begun to bloom, but it is not the best of times-not as yet. The verdict hides extreme opinions. "The choice is between being bullish or being very bullish," says Kirit Parikh, professor, Indira Gandhi Institute for Development Research. However, Suresh Tendulkar, professor, Delhi School of Economics, is unsure whether the economy is " healthy or obese".

If the recovery doesn't sound equally sweet to everybody, despite the spate of upbeat data, there are several reasons. Contrary to what is often said, India never actually slid into a recession in the past 10 years. Recessions are commonly defined as at least two consecutive quarters of declining GDP. The lowest GDP growth rate in recent years was 4.3 per cent in 2002-3. Even during this slide, sectors like housing were booming and consumers never stopped spending. Sales of cars, two-wheelers, personal computers and phones have been booming through the late 1990s. Since the economic growth never plunged drastically, it will not rebound dramatically.

Then there is usual scepticism. The profit surge in corporate India could be temporary since it is not entirely backed by a rise in sales. Stock markets sentiments could be fickle and good rains could become excessive, washing away hopes of a rural rebound. The two old drags on the economy are still at work-the snarling deficits of the Centre and states and notoriously poor infrastructure. Finally the big mystery: even if the recovery is really as good as the data sound, why aren't big investments taking place?

To some this mystery is a source of great optimism. Since the 1990s the economy has acquired some long-term strengths it never had before. The Indian industry has become globally competitive. Small to big Indian companies are selling products in the best and the biggest markets. Investments are happening across all industries-not to set up new plants as would happen in previous recoveries, but to improve the efficiency of existing plants. Five years ago, each Tisco employee produced 133 tonnes of crude steel in a year. Today he produces 245 tonnes. Such gains in productivity, spread across industries, resulted in a triple bonanza of higher profits, lower investment per unit of production and low price hikes, which kept consumer demand high.

No wonder corporate India is more confident of the recovery than economists. Says Anand Mahindra, president of CII and managing director, Mahindra & Mahindra: "Many Indian companies have transformed themselves into globally efficient fighting machines." Among the 80 CEOs gathered at the CII's National Council meeting in Chennai in July last week, not even one cribbed about the poor state of the economy.

The fiscal deficit, though higher than ever before, doesn't start impeding growth till it pushes up either the interest rate or inflation or both. Till now, the rise in deficit has been accompanied by a fall in interest rates and inflation. Besides, on July 29 the Central Government cleared the Fiscal Responsibility Act that obligates the government to slash deficits in a phased manner by 2008. Infrastructure, though still vastly below global standards, has improved in the areas of telecom, ports and roads.

Actually, the is-it-or-isn't-it debate isn't about whether there is a recovery or not. It's about how long and how strong the recovery will be. And even the not-so-optimists believe that now, more than ever before, the economy is at a stage to propel itself to annual growth rates of 8 per cent and more if the government fixes labour laws and infrastructure bottlenecks in the coming months-not years.

Industry: On a Roll
PROFITS OUTGROW SALES BY THREE TO FOUR TIMES
FOCUS ON PRODUCTIVITY-NOT CAPACITY-ENHANCEMENT
INVESTMENT COULD PICK UP AFTER SIX TO NINE MONTHS

Sales growing at over 10 per cent. Profits up by 30-50 per cent. Productivity rising by 50-100 per cent. And export orders full for next few months. What more can a producer ask for? Beginning 2002-3, most of Indian industry has been showing up some very impressive numbers of performance. According to the official data on industrial production, the index of industrial production (IIP), about two-thirds of the industry had been recording a positive growth for the past one year. But the leading sectors-sectors that are growing at least as fast or faster than the overall IIP-are fewer at about 30 per cent. So the verdict is unclear on how broad-based is recovery in the manufacturing sector really is. "The manufacturing recovery right now is sector-specific," says Subir Gokarn, chief economist with CRISIL.

The most heartening part of the industrial revival is the coming to life of the old economy sectors-cement, steel, machine tools. In May this year, Tisco announced a net profit of over Rs 1,000 crore for 2002-3-five times higher than the previous year and twice as much as it had ever achieved. The public-sector sail entered the zone of profit for the first time in five years in the last quarter of 2002-3. Its sales shot up by 24 per cent last year (Rs 19,207 crore in 2002-3 from Rs 15,502 crore in 2001-2). This is not a flash in the pan. "Our performance is in tune with the upturn in the industry," says V.S. Jain, chairman, sail.

Some industries classified as poor performers in the IIP are reporting a big turnaround at the factory levels. If IIP data were to be believed most machine tool makers had declining production last year. Not if you check with the industry. "We had good year in 2002-3 when we grew in double digits. We are likely to repeat or even better our performance this year," says A.S. Goindi, president of the All India Machine Tools Manufacturers Association. Hemant Kanoria, managing director of SREI Finance, which leases equipment for infrastructure projects, says he has never seen the scale of business as big as it is this year.

No wonder, most of India Inc is on a roll, largely driven by a surge in profits. With stock markets perking up after a two-year hiatus, and companies doling out hefty dividends, the good times are unlikely to go away soon. "The middle class has it going pretty good," says Rahul Bajaj, chairman, Bajaj Auto. "Even at 6 per cent growth in GDP India would be among the fastest growing economies, perhaps second only to China."

But the march to profitability has not been painless. After investing heavily in the early 1990s-often excessively-Indian companies were saddled with overcapacity as demand belied lofty expectations. This led to loan defaults, chronic sicknesses and wary financial institutions. As multinationals came in, India Inc was forced to clean up. Labour force was cut through VRS, which boosted productivity and brought a windfall for corporates. Simultaneously, interest rates crashed and significantly lowered the cost of capital. Increasing competition meant greater focus on systems, procedures, automation and R&D. "We cut costs by Rs 950 crore over three years," says Ravi Kant, executive director, Tata Motors (formerly Telco).

That explains why unlike in 1994-95 the current economic recovery has not seen large investments in new projects. "While we have seen a good strong year, perhaps the best since 1996-97, it pales in comparison to the growth seen in 1994-96 in terms of investments," says Mahesh Vyas, CEO, Centre for Monitoring Indian Economy.

Investment recovery could take at least six months. Explains Amit Mitra, secretary-general of FICCI: "For a company to plan a big investment project there should be demand buoyancy for at least two consecutive years. By the end of the current year this criterion would be met." Adds Dilip Chenoy, deputy director-general, CII: "For new investments to happen, companies should reach a point from where they cannot squeeze any more out of the existing investment." It is not that investment has not been happening. It has been happening in productivity enhancement rather than capacity enhancement. sail alone is investing Rs 600 crore in modernisation this year. "Unlike the investments of the mid-1990s, investment that is happening today is more realistic," says Bibek Debroy, director, Rajiv Gandhi Institute for Development Research. High-growth sectors like it, telecom, consumer durables and food processing and a host of services sector companies have been pouring crores of rupees in new businesses and expansion of old ones. Samsung invested Rs 200 crore since 2001, Coke Rs 450 crore. The telecom sector is believed to have invested over Rs 30,000 crore in the past four years. And, of course, the Government is spending Rs 35 crore a day on building highways.

Whenever a big, economy-wide push in investment happens, one thing is beyond doubt. The expectations about the future are very positive today: expectations of producers, investors, farmers and consumers. Translation of expectations into investments will determine the length of the recovery.

Jobs: The Coming Boom
NEW JOB CREATION COULD BE HIGHEST IN FOUR YEARS
SALARY LEVELS SETTLING TO REALISTIC LEVELS
LABOUR REFORMS HOLD KEY TO MANUFACTURING SECTOR JOBS

No matter how high corporate profits soar or how much wealth the stock markets generate or how gung-ho businessmen are, none of these is of any avail till the economy of 1.03 billion people creates jobs for its ever-increasing labour force. Unless jobs are created, the economic cycle of income generation leading to demand creation, leading to production, which creates investment and employment won't even start.

One of the fallouts of big manufacturing companies becoming slimmer has been the widespread job loss in the organised sector. Tisco, Tata Motors, Maruti, Bajaj Auto, sail, all public-sector banks and many PSUs have shed thousands of jobs in the past few years. Worse they have also been very reluctant in hiring new employees, especially of the blue-collar variety. The global infotech slowdown put a halt on job creation in a sector that was creating the most visible jobs in the 1990s-software. What intensified the feeling of joblessness was the growing unemployment and underemployment (employed at less than the full potential) in the rural areas.

Thankfully, the future looks brighter. Early signals of a pick up in white-collar jobs came in with a good turnout of companies on the campuses for placements this year. The trend is reinforced by the recruitment firms and human resource managers. Placement companies estimate the number of jobs in private companies to rise by 25-30 per cent in 2003 as against 10 per cent growth last year and an estimated 20 per cent dip in 2001. These estimates relate to the jobs in relatively new-economy sectors of financial services, pharmaceuticals and healthcare, infotech, IT-enabled services (ITEs), engineering, consumer durables and media. "For job seekers, 2003 may well be the best year they may have had in a long time," says Tarun Bali, CEO, ABC Consultants. He says the biggest job creators in 2003-4 will be ITEs, insurance, banking, healthcare and retail. Insurance alone is expected to add one lakh jobs in 2003.

The spread of job creation is encouraging too. It spans several industries and is for all levels of employment. Most headhunters expect the upswing in the job market to last for the next 3-5 years. According to the US-based Forrester Research, outsourcing by companies in developed economies will create at least 33 million jobs in the next five years in developing countries and a large chunk of that will come to India.

Jobs may boom, but not salaries. That may be a sign of a more sustainable job growth. The competitive hiring of the mid-1990s in the IT sector, which was followed by a brief spell of the dotcom mania, had propelled salary levels in some sectors to unrealistic levels. That anomaly is under correction now. Omam Consultants, which does annual salary surveys, estimates the average annual rise in salaries to have come down from 26-37 per cent in 1996 to 12 per cent in 2003. "With India emerging as the outsourcing hub due to its low cost structures, companies will be under pressure to maintain their cost edge," says S.P. Kapahi, joint managing director, Omam Consultants.

For traditional manufacturing industry, the outlook would be different. The downsizing in most big companies-through VRS-should run it full course this year. After that, job losses should stop, though fresh hiring in manufacturing will await a change in labour laws. Given the expected upsurge in demand for manufactured goods, many companies may be looking to expand their payrolls. If the government can amend the laws quickly, the hiring here could also look up by the end of the current financial year. "Labour laws are hindering fresh employment in manufacturing," says Indira Rajaraman, RBI professor at NIPFP.

Ironically, most of the jobs created in the new economy are high skilled-Gokarn defines them as exclusive. That means people losing jobs in manufacturing may not fill the vacancies created in services. However Rajaraman points to the massive expansion in businesses like home and business security and courier services as instances of non-exclusive job creation in the services sector. Though no official figures are available, job market watchers estimate that in the 1990s, for every job lost in the industry more than one job was created in the service economy.

Where does that leave the job creation in non-urban areas? A prospective upturn in agriculture should alleviate the rural unemployment. Surprisingly, the small-scale sector, which employs roughly 200 million people, didn't witness a slowdown all through the 1990s with average annual job addition of 4 per cent in the past 10 years. To some extent, that explains the spread of prosperity beyond urban centres.

Consumers: Good Going
MORE VARIED CONSUMPTION BASKET
CONSUMER FINANCE TREBLED IN PAST THREE YEARS
INFLATION RATE IS LOW AND UNLIKELY TO RISE

If low prices and wide choices delight customers most, the Indian consumer never had it so good. The inflation rate for urban consumers was just 3.8 per cent in 2002-3. Rate of price rise-which is what inflation rate shows-could have been even lower but for the brief spurt in oil prices before the onset of the Iraq war. A dissection of the wholesale price index shows that prices of industrial products inched up by just 2.7 per cent last year and that of food items by 3.3 per cent. But fuel prices rose by 5.6 per cent. Given the competition in the market and the onset of good monsoons, prices of neither industrial products nor food items should flare this year.

Fuel and utilities prices could have risen faster given the bulging subsidy on kerosene, LPG, power and civic services. But pending elections would force the Government to contain even these prices. The consumption basket of most Indian consumers has also changed. The share of consumer durables (electronic goods, fridge, cars) and utilities (power, water, phones) has increased at the expense of other products. "The rising prices of utilities and increasing purchase of consumer durables, especially on loan, has led to a stiff competition for the share of consumer's wallet," says Siddhartha Roy, chief economist, HLL. All to the good of the consumer. Consumer finance-value of loans taken for consumer products, including housing-has bolted from Rs 20,000 crore in 2000-1 to Rs 70,000 crore in 2002-3. This was powered by a steep fall in interest rates. "This is the best economy in decades because at last it is the Indian consumer who is driving growth," says Kalpana Morparia, executive director, ICICI Bank. It matters little who is in the driver's seat as long as the economy flies high.