It is a party in which everybody is rocking-consumers, producers, investors, exporters, farmers. And why not? For once the sun is shining bright across all three sectors of the economy-agriculture, industry and services-with each poised to grow by at least 7 per cent in 2003-4, a record of sorts. Consumers are on a buying binge rarely seen before and jobs are more plentiful than a year ago. Even the ruling NDA hopes to piggyback on the booming economy to victory in the forthcoming elections.

WHY WE ARE FEELING GOOD

Because tax cuts have raised incomes and lowered prices

Because falling interest rates have made hire-purchase easy

Because stockmarkets are finally creating wealth for small investors

Because good monsoons have led to a rural resurgence

Because housing, highways, retail and IT are generating large-scale jobs

Because Indian industry is competitive and going global

Because India is in the centre of a global economic debate

WHAT CAN DAMPEN THE FEEL-GOOD

If Inflation and interest rates start rising soon

If elections disrupt the reforms momentum

If share prices suddenly go into a free fall

If new investments don't restart and infrastructure languishes

But is this the dawn of a long spell of prosperity? Or are we looking at the dusk of a brief economic upswing? After all, far too many times in the past have sections of the Indian economy had long spells of darkness-be it drought dragging down rural incomes or downsizing causing job losses in manufacturing or a scam dousing the sentiments on stockmarkets.

To find out how long India can really shine, India Today called a meeting of the Board of India Today Economists (bite). The verdict was reassuring: The feel-good factor pervading the majority of Indians is real. And with some luck and efforts, the party can last long (see following report on bite forecasts). To get a feel from the ground, India Today also reached out to select industrialists, bankers, retailers and recruiters. The mood among them is even more upbeat. That's not surprising, considering the wave of indisputably glad economic tidings: foreign-exchange reserves of $102 billion and rising, inflation of 6 per cent and set to fall; kharif crop (mainly rice, maize, pulses) likely to be a record 114 million tonnes; retail investors estimated to have made Rs 7,000 crore on the stock markets in just three months...

The list goes on and on. Reflecting optimism, bite raised its GDP growth forecast for 2003-4 from the 6.7 per cent it predicted in July 2003 to 7.5 per cent, with some members even foreseeing an 8 per cent growth. If that does happen, this year's economic growth will be the highest in 15 years. The unanimity over this year's growth spike masks differences on the depth and spread of the feel-good factor.

To diagnose the life of feel good, it needs to be dissected into two-the sentiment caused by cyclical (mostly short term) factors such as upswing in agriculture, stock market upturn and the positive sentiments driven by structural (long term) factors like interest rate reductions, infrastructure improvements and demographic changes.

Rebound in agriculture, from -3.2 per cent growth in 2002-3 to a growth of 7.7 per cent in 2003-4, is a critical short-term force pulling up the GDP growth. Indira Rajaraman, professor, NIPFP finds no reason to be celebrating a one-time growth spike. "In a chronically poor country like India, over 7 per cent economic growth for one year shouldn't be considered a big deal," she says.

Bibek Debroy, director, RGICS, attributes part of the feel good to last year's low base. "Since the GDP had grown by a mere 4.3 per cent in 2002-3, statistically it is easier to have a higher growth rate this year," he says. He is sure though that there are also long-term factors for the growth revival.

Actually, the current economic boom is powered by both cyclical and structural forces. That is why it is likely to last beyond 2003-4. What is less certain is the strength of some structural changes. For instance, explosion in consumer spending is one of the key drivers of current industrial recovery (see following story: Why Indians Must Keep Spending). But Rajaraman notes that a substantial part of consumer spending is happening on products that are helping middle-class Indians find private solutions to public failures-buying inverters to surmount public failure in providing continuous power or buying water purifiers to overcome the government's inability to provide clean water. But even she agrees that benefits of measures like cut in customs duty, which is partly responsible for the spending boom, are here to stay.

CRISIL Chief Economist Subir Gokarn spells out two more fundamental changes behind the current boom- deep reduction in interest rates and some demographic changes (like rising proportion of working people in total population). In the past five years, interest rates have plummeted by 4-5 per cent. This reduction has benefited both producers and consumers. For producers the cost of capital has come down. That has helped companies become more competitive. Says Nandan Nilekani, president and CEO of Infosys Technologies: "Indian companies have rediscovered their competitiveness. Not just in information technology but across many sectors like automobile, finance, pharmaceuticals and textiles."

The interest rates cut have also led to an explosion in consumer credit. From houses to vehicles to travel, Indian middle classes are taking loans to fund expenses they could not earlier afford. Since compared with other countries Indians are still less indebted-only 20 per cent of all houses bought are funded by loans and the total number of credit cards in the country is still only four million-Gokarn expects the borrowing-led spending to continue for several years. "I am reasonably persuaded of the sustainability of the feel good," he says.

The most optimistic of bite members is Kirit Parikh, professor emeritus, IGIDR. He foresees the Indian economy growing at the rate of 8 per cent for many years. To understand how GDP growth affects an individual's fortunes, consider this: A 6 per cent annual rise in GDP will double per capita income of Indians (currently $500 a year) every 18 years. If GDP growth climbs to 8 per cent, per capita income will double every 11 years. Parikh has many reasons to be optimistic. "Agriculture is no longer a constraint on economic growth. And infrastructure-a traditional weakness of the Indian economy-is also undergoing some big improvements," he says. He is betting on the new Electricity Act to transform India's power sector. People in the thick of action on infrastructure share Parikh's hope. Vinayak Chatterjee, chairman of Feedback Ventures, expects infrastructure to be a magnet of employment and investment for the next 20 years or more.

A development of unqualified long-term economic gains is the ongoing highways construction programme. Already it has cushioned the fallout of the poor agriculture performance in 2002-3 by providing large-scale non-urban employment. Since the highway construction is to continue for many years economists are optimistic of roads being a driver for future growth.

Siddharth Roy, chief economist with the Tata Group, brought in expectations into the picture. According to him, the longevity of the feel-good factor depends on expectations and right now both consumer and entrepreneurial expectations of the future were very high, implying continuing consumer spending and revival in investments. "The industry has come out of years of painful restructuring and is ready to invest and hire," he says. That's heartening because through its ripple effect of higher production, more employment, additional incomes and new demand, investments strengthen the economy more than any other single factor.

But not every body is sure of the speed and magnitude of investment revival. Reason: As Jairam Ramesh, economist and moderator of bite, points out, there is a mismatch between big investments being made at corporate levels and a fairly bleak investment picture in the overall economy. "Investments could be buoyant at the firm levels, but they are not showing up at the macro level," he says.

A pick-up in investment also holds the key to revival in manufacturing jobs. There are reasons to be hopeful. Both Roy and Gokarn are sure that India Inc. has stopped jobs cuts and should start hiring soon (see following story, Where is the Job Boom?).

The other big concern is high government deficit. According to Rajaraman, persistently high deficits (currently at more than 10 per cent of the GDP and among the highest in the world) have curtailed the government's ability to invest. She is sure the government won't be able to meet the targets of deficit reduction set out in the Fiscal Responsibility Act, mainly because excise and customs revenues aren't growing fast. Debroy, who predicts an appreciation of the rupee against the US dollar, worries how industry will adjust to a stronger domestic currency.

So it may well be that beyond the financial year 2003-4 growth rates in GDP, industry and agriculture will slip. But if elections do not upset fledgling investments and future governments continue to blend small portions of populism with large doses of reforms, growth will revive and feel good will spread.

-with Malini Goyal