Home > A Ten Percent GDP Growth

A Ten Percent GDP Growth

Is it feasible?

hanks to the timely policy of Liberalisation, Privatisation and Globalisation introduced in 1990, India is the world's tenth largest economy according to the World Bank report of July 2005. Growth has been all-round - in the Primary, Secondary as well as the Services sector. Even on the external sector front, the increasing oil prices may create a current account deficit of about 2 percent of GDP during the year 2006, but an increasing flow of invisibles will ensure a comfortable external payments situation. Savings rate has reached 30 percent of GDP in 2004-05 and inflation may be well under 5 percent. The Indian economy is going through a process of transition, exhibiting many progressive features:

1. An 8.1 percent growth has been recorded in the first quarter of this fiscal year.
   
   
2. The country's infrastructure has reached a "take-off" point.
   
   
3. All elements of an essential institutional frame work are now falling in place and the private sector can use this opportunity to push the economy forward.
   
   
4. A vibrant middle class located mostly in towns and cities has emerged giving rise to a brand new generation of executives, businessmen and industrialists who are competing in the global market.
   
   
5. Call-centres, information and communication technology companies, BPOs and premier educational institutions have not only begun to offer world-class services but have also given a boost to service exports from the country.
   
   
6. Growth strategies have been designed to cast a wider net over the regions of the country, sectors of production, economic and social groups. Growth is therefore viewed as the principal instrument to alleviate poverty.
   
   India, today, has a dynamism that has never been there before. Today, it is the third most attractive destination for foreign funds including foreign investments and it is the fourth biggest country in terms of the purchasing power of its currency and next only to China on global competitive ranking. Given these facts, the future prospects for higher rate of growth seem to be brighter for the economy.
   
   Politically, too, the country is aiming for a permanent seat in the U.N. Security Council and more substantial trade as well as bilateral cooperation in science and technology with European Union Countries and the United States. India is keen to step out of the image of a poor country and join the league of developed, self-confident and self-sufficient nations of the world.
   
   This optimism in the present environment is natural and, hence, all seems to be well with the Indian economy. However, considering all aspects of development, there are many things going wrong in the economy which can affect the present growth rate if appropriate and corrective measures are not taken by the Government.
   
   The presence of inequality across regions has inhibited the growth process. The caste and gender divides, unfair labour laws, capital market imperfections and socio-economic status continue to determine access to basic services like health, education, employment and economic opportunities. Even today, over 260 million people live below the poverty line. Poor infrastructure, too, is a leading obstacle to business growth in India.
   
   The enviable economic growth rate achieved in India in the last decade has failed to trickle down to transform the lives of majority of the poor people in the country. The challenge before the policy makers is not just about sustaining the growth rate but in ensuring that the poor and marginalised sections are included in the benefits. Poverty alleviation programmes have not created the desired impact on the lifestyle of these people.
   
   Although education and health were given priority for human development, the country did not have the ability to absorb the growing number of educated in productive jobs. Unfortunately in India, economic growth and social development have not happened together.
   Compared to some of the East Asian Countries, India's performance has been less impressive. India ranked low in human development index - at 127 out of 177 countries as per the UNDP human development report 2005.
   
   In the New Economic Policy, the government had to withdraw from areas where markets could function effectively and, by doing so, the government acquired increased financial and administrative resources to pay greater attention to social infrastructure. However, the strategies adopted to push infrastructure projects forward were not very effective.
   
   In the 1950's, the whole focus for development was on capital-intensive projects rather than on labour intensive projects. Even now, if the economy has to grow at 8 percent and more during the Eleventh plan, both agriculture and manufacturing should show better performance. We would also require a much higher savings level and larger domestic and foreign direct investment and we need to try harder to open up and liberalise the economy.
   
   In agriculture, massive investments are required in small and medium irrigation schemes, water-shed as well as sprinkler and drip irrigation programmes and contract farming. The agricultural sector must grow at least by 4 percent per annum. A major cause for worry is that the average size of operational holdings has declined from 2.28 hectares in 1970-71 to 1.41 hectares in 1995-96.
   
   If agriculture continues to perform badly, it will not only drag the overall performance of the economy but also result in jobless growth and stagnation in material living conditions of the majority of the people. Wide-ranging reforms are needed to free the agricultural sector from the shackles of various controls on the movement and sale of products as well as to ensure adequate credit facilities to farmers. Marketing strategies and laws must be reformed and there must be focus on diversification to high value crops. Integrated farming should be adopted including livestock, poultry and fisheries. Overall public investment must be enhanced to the minimum of 10 percent of centre and state plan outlays. Much needs to be done to ensure that about 40 percent of the country's fruits and vegetables do not go waste.
   
   On the manufacturing side, we need to introduce reforms in labour laws for removal of bottlenecks in infrastructure, for revamping of primary education and health care facilities and for enhancing overall productivity. Conditions must be conducive to investments and for Public-Private partnership.
   Labour market conditions must be made more flexible and small scale industry de-reservation must be ensured so as to attract foreign direct investments.
   
   Reforms in the tax-system are necessary to improve revenue productivity and to remove micro level inefficiencies. They include rolling back many of the exemptions and tax preferences, continued improvement in tax administration and information system and levy of full-fledged VAT.
   
   Infrastructure has emerged as a key determinant in investment decisions. Every investor looks for readymade infrastructure, easy access to air and sea ports, nearness to sources of raw materials etc. With the service sector capable of generating employment to 6 to 8 lakh engineers over the next few years, the pressure on infrastructure of lead cities and towns is bound to increase significantly. If investors find a particular city unable to cope with the growth, they will move to greener pastures.
   
   Besides these, the public authority and public policy should ensure that at least minimum measure of social security in the unorganised sector is guaranteed. The major challenge is to extend social security to 300 million workers covering all states and all groups of workers.
   
   The existing FDI system needs to be revamped with the aim of cutting down red-tape.
   Good economics combined with sensible and responsible politics can help the economy grow consistently at 8 percent and, maybe, even 10 percent during the Eleventh plan.
   
   However, the question is whether special interest groups will allow the reforms to be carried out.
   In India, there have never been external constraints to growth. All hurdles have been and continue to be only internal, imposed by polity, social structure, regional imbalances, inequity and inability to take hard but essential decisions.
   

Items	India's status	World average
1. Life expectancy	0.64	0.70
2. Education	0.61	0.77
3. GDP	0.56	0.75