PIMCO: India's Economy Overlooked but Crucial to Global Recovery

The Indian economy is critical to the future of political and economic developments in Asia and around the world, but the West fails to give it the attention it deserves, said global investment management firm, Pimco.

In a report published in the Financial Times, Pimco chief executive Mohamed El-Erian and Economics Nobel laureate Michael Spencer suggest that an economic failure in the world's largest democracy could have far reaching consequences.

India has a third of the world's poor and economic growth in the country can make a huge difference to reducing global poverty. Moreover, Indian middle class will play a crucial role in the rise of consumer culture in emerging economies.

From a political stand, India has an important part in maintaining stability in its neighbourhood which has nuclear powers and war-stricken nations.

"India operates what might be called a highly leveraged growth model. Government deficits are relatively high but manageable provided gross domestic product growth is about 8-9 per cent", the report pointed out.

However, the authors said that despite a number of such important factors, India fails to receive the attention it deserves from the West unlike other emerging economies like China or Brazil.

They suggest four possible reasons for this. First, Western world at the moment has its handful, with the eurozone debt crisis and the slowing global economy. Second, even if the West were to turn their attention to India, the country is hard to analyse, with its number of regional governments.

Thirdly, some of the real issues that the country faces often get overtaken by the success stories of its private multinational firms. Finally, India's strength is more at service sector than manufacturing, and it is nowhere near prominent as China's.

However, the duo pointed out that these reasons are not strong enough to ignore India, given the country's potential.

Although India did introduce a wave of economic reforms in the 1990s that set the country's economy on a growth path, it failed to follow through the efforts due to a series of political impasses.

Added to this the country has more than its fair share of corruption. The number of billionaires in the Indian parliament is on the rise, and a significant number of the members of the parliament have criminal cases against them.

But the government has taken efforts to correct policy mistakes made earlier, the report noted.

Spearheaded by Prime Minister Manmohan Singh, the government had recently announced a wave of policy easing measures ranging from allowing foreign direct investment to setting up a direct cash transfer system to its citizens to avoid corruption.

The authors warn that India needs to place reforms that will curb corruption in its politics and encourage economic progress, not only for its own sake, but others too.

"But if it takes too long for this to happen, many western governments, companies and investors will wake up to an unpleasant surprise. The impact will be felt well beyond India's borders."