With the upcoming elections and all sorts of political commentary being written on a

daily basis, there seems to be a certain lurking element, that it seemingly going
unnoticed by the mass media.

Whether it is intentional or not, Indians are seemingly being blind-sighted by a

phenomenon that is being conceived right in front of our eyes: our nation's
economy is on the brink of an unprecedented economic resurgence, one that has
not been witnessed since India decided to liberalize its economy in 1991.

Specifically, all indicators are pointing towards India whose economy will grow faster
in 2014 than anybody could have previously imagined, and how 2014 will be the
year that India finally makes that magical jump from the ranks of a '3rd world'
economy to a legitimate, economic powerhouse.

However, before we jump the gun and claim that India's economy can be
considered to be at par with the likes of China, US and the rest of the West, certain
changes must occur.

Firstly, our GDP must grow at a much faster rate than the highest of expectations (a
notion that this author strongly believes will occur). Secondly, there must be a very
real, visible change that is not only shown through numbers and statistics but is felt
by every single Indian citizen.

And last but not least, the outside world must observe and respect the realities; that
India is a nation on the brink of undergoing a massive re-development and must
genuinely be respected, and perhaps even a little feared.

This column will explain exactly why and how, that is going to happen over these
next 12 months.

The numbers don't lie

Gross domestic product, more commonly referred to as GDP, and is by far the
economic indicator most referred to when one is attempting to judge a nation's
economic development. It stands to reason that, without a shred of doubt, India's
GDP is bound to outperform the bleak expectations being thrown around by
economists.

Let's break down GDP. GDP can be calculated in three ways, but the easiest and
most practical way is to calculate it using the expenditure approach, which sums up
the four components of expenditure to calculate the overall GDP. The formula goes
as follows:

GDP = private consumption + gross investment + government spending + (exports

-- imports), or

So let's go ahead and examine, in detail, the four components and how they are
bound to perform in 2014.

Private Consumption (C)

According to Orkii.com, which tracks economic development in all countries and

projects future growth among different aspects of the economy, India ranks as
number 6 out of a total of 136 countries where data on private consumption growth
is available for the year 2014.

The 5 rankings above India, in respective order, are:

#1 Namibia: 12%

#2 China: 9.2%

#3 Estonia: 8 per cent

#3 Ethiopia: 8 per cent

#3 Vietnam: 8%

#4 Sri Lanka: 7.1 per cent

#5 Ghana: 7 per cent

#5 Papua New Guinea: 7 per cent

#6 India 6.9 per cent

Needless to say, other than China, none of the other countries have an economy
anywhere near the size of India's.

Furthermore, the silver lining is that consumption is normally the largest GDP
component of the economy. It includes personal expenditures such as the overall
purchases of such day to day expenses such as food, rent, jewellery, petrol, and
medical expenses.

So if you look at the numbers closely, you realise that the largest component of
India's GDP i.e. consumption -- is projected to grow 6.9 per cent next year.
Meanwhile, the 'experts' (most of whom do not reside here) are claiming that India's
GDP will grow at a rate of 5 per cent overall in 2014.

With a rising middle class that is on the brink of erupting into mass consumption of
daily goods (think about the last time you walked into a Big Bazaar), consumer
activity in India is picking up at a quicker pace than ever before. All of this
translates into that "C" variable in the GDP formula.

More consumer buying = higher GDP. Indians, without a doubt, are going to have no
reservations with consuming goods in the next year. Much has been written about
2013 as being a year in which India did not live up to its expectations. The middle
class numbers stayed the same: around 300 million, making up around a quarter of
the country's population. But GDP stalled in 2013 due to numerous reasons, many
of which were outside of India's control.

However, with the US and the rest of the West making economic resurgences, the
pastures will be green in 2014 for consumption activity. With a middle class that is
expected to grow in the tens of millions, you can bet that consumption activity will
grow dramatically.

Investments (I)

How does a business owner allow his customers to consume at a greater speed,
lower costs, and higher efficiency in 2014 versus 2013? By investing in his business
of course. And, with higher consumption capacity by consumers, entrepreneurs and
business owners are bound to invest heavily into their businesses.

FDI (Foreign direct investment) growth is another component that is going to drive
India's GDP next year. As has been fore claimed by virtually every economist, FDI
activity is increasing on a month by month basis and is only bound to keep
increasing over the next year.

The reason is simple: the US economy as well other Western economies have re-
emerged out of their 5 year recessions, and foreign investors are actively looking at
India to deploy their funds.

One needs to look no further than the story of Wal-Mart and its insistence on
wanting to setup shop in India. Since 2008, Wal-Mart has wanted to enter India. For
those readers that are unaware, Wal-Mart is by far the biggest retailer in the world.

Wal-Mart tried to setup shop in India by entering into a joint venture (JV) with Bharti,
but in October the JV fell apart due to internal complications. Many thought that
Wal-Mart would give up on its ambitious plan to setup stores across India, but it has
not given up yet.

Just last week, it was announced that Wal-Mart is still lobbying persistently in the US
to get US government to convince India to relax its FDI regulations, this time with no
strict JV impositions.

All in all, Wal-Mart has spent a total amount of $39.42 million (about Rs. 242 crore)
on numerous lobbying issues in its attempts to setup a massive conglomerate of
retail outlets in India.

If Wal-Mart is pursuing FDI investments so persistently, then you can be rest

assured that other global retail giants will be entering India in the near future with
similar, ambitious plans as well.

With the RBI insisting that it wants to make it more lucrative and seamless for FDI's
to invest in the country in the next year, all signs are pointing towards a massive
increase in FDI activity in the country.

Another golden lining is that residential purchase of new homes is included in the
'investment' category of GDP. With falling house prices, 2014 could be the year that
a real estate bubble breaks and residential home purchases once again go on an up-
climb. Higher home sales = increased GDP.

Government spending (G)

Due to it being an election year, government spending should increase in 2014 as

policy makers from all political parties look to uphold promises made. So far through
2013, government spending has remained stagnant due to the insistence by the
government to reduce the fiscal deficit.

All this could very well change in 2014, with the government keen on proving to its
citizens that it is willing to invest in businesses and the public sector due to the
simple fact that actions speak louder than words.

As elections approach, the best way a political party can back up its words is
through spending on the needs of its citizens, and what India needs right now is
better infrastructure. Already, the government is showing signs of willing to set
aside more funds on infrastructure spending in 2014. This all leads to a higher
projected GDP.

Exports - Imports (X - M)

The icing on top: with a weak rupee, all export sectors of India are bound to boom in
2014. The IT sector has already had an incredible year in 2013, with the BSE IT
Index appreciating an astounding 49 per cent through 2013. With the rupee
expected to remain weak due to further rate hikes by the RBI to curb inflation, we
can expect the same to continue in 2014.

The export industry will drive India's GDP past any and all projections made. That is
due to the fact that, not only will the aforementioned rupee remain weak (a blessing
in disguise for export driven companies), but more and more countries in the West
that are climbing out of their recessions will look to India for its outsourcing needs.

With the RBI liberalizing the markets through the tedious efforts of its governor
Raghuram Rajan, outsourcing will play a key role in 2014 for GDP growth.

So, we have covered the four components that make up India's GDP and have
shown why each component should perform better than expectations. A higher than
expected GDP would lead to a surge in the stock markets and an economic
resurgence. But a question still remains at large: outside of numbers and statistics,
how would we know that our economy is improving?

Reality and perception

In order for the rest of the world to recognize India's economic resurgence, it will be
vital for citizens to feel that economic progress is being made. In other words,
reality must coincide with perceptions. If domestically, Indians feel that there is a
big economic development underway, the outside world will recognize this
phenomenon and India will generate the type of respect that it deserves.

Without a doubt, 2014 will be the year when India would be able to exactly do it.

With an economic surge, jobs are bound to be created. With the export sectors
expected to do exceedingly well in 2014, new outsourcing placements are bound to
materialise in all export driven sectors: pharma, IT, textiles, jewellery (due to higher
consumption domestically as well as internationally) are a few examples.

Domestic sectors are bound to perform better in 2014 as well. For example, the
banking sector is bracing itself for a big turnaround due to the RBI's liberalization of
the banking industry, making it easier for banks to acquire loans and reducing the
amount of red tape within the sector.

We have already touched upon the retail sector, which will not only drive
consumption but will also create jobs as new entrepreneurs enter the landscape and
create businesses.

As the famous saying goes -- perception is reality. When the outside world sees
what India is going through, its perception of the country is bound to dramatically
change. We have come a long way since the liberalization of the Indian economy in
1991, and the outside world no longer sees India the same way it did 25 years ago.
It now sees the soon to be 3rd largest economy in the world.

It is about time that the world recognises India for what it truly is.

Raghu Kumar is the co-founder of RKSV, a leading low-cost broking firm. The
opinions expressed here are the personal opinions of the author. NDTV is not
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