10% growth possible, says IIC study

Days after Prime Minister Manmohan Singh said India can achieve 9 per cent average growth during the 11th Five Year Plan, a mid-year economic review by India International Centre has stated that all factors are in place for the country to sustain 10 per cent plus growth annually.

The IIC review, presented by economists Surjit S Bhalla, Rohit Chawdhry and Tirtha Das on Saturday, said the hype about India is real.

"Almost all the factors are in place to sustain more than 10 per cent economic growth annually, as the investment level in 2006-07 is over 40 per cent of GDP, a jump from the 25 per cent levels, just five years ago. This is one of the fastest jumps in history", said Bhalla, adding that if India achieves 10 per cent growth today, then it is likely to cross Chinese growth rate of 10.5 per cent by 2010.

The survey points out that employment is growing at 2.5 per cent per annum and the increasing labour force participation rate of women is one of the key driving forces of the economy.

"Wages in India have also seen significant growth in the last three decades. In comparison, wages in the US have remained relatively stable since 1970 while Indian wages grew by 33-35 per cent", Bhalla said.

The survey adds if industry and services grow at 11 per cent, then India will be able to achieve 9 per cent GDP growth even with zero per cent growth in agriculture. If agriculture grows at 3 per cent, then the GDP growth rate would 9.6 per cent.

Bhalla said that India is in a sweet spot of growth which can last another decade or two. He added that the chances of India losing relative competitiveness or real interest rates going up significantly were unlikely, even as the effect of politicians in messing up things was close to zero because of their decreasing influence in causing damage.

The study has concluded that inequality in the country has remained steady for 25 years, after declining between 1950-1983.

While the official level of poverty is approximately 22 per cent, the review says this level is based on average survey consumption expenditure, which misses out on 55 per cent of national accounts consumption.

In a discussion after the presentation, Head of Indian Development Foundation of CII, Subhashish Gangopadhyay said, "infrastructure is the biggest challenge before the government. It has been criticised for not encouraging foreign direct investment."

He said India should encourage FDI. The study says the significant growth of the middle class as a percentage in the population, from 22 per cent in 2000 to 32 per cent in 2005, will be the driving force in the development of infrastructure.

CERG Advisory Pvt Ltd Chairperson, Omkar Goswami, said bridging the gap between demand and supply of power as soon as possible is necessary to achieve 10 per cent growth rate.