The finance ministry’s chief economic advisor, Kaushik Basu, says India may achieve double-digit economic growth after five-six years, if some reforms are set in motion.
“Given global problems like high oil price and the sovereign debt overhang in Europe, double-digit growth will not be easy for India,” he told Business Standard. This is despite the fact that the long-run growth prognosis for India is very good, he said. “In 2008-09, the investment rate was 34.5 per cent. In 2009-10, it rose to 36.5 per cent.”
India, he said, had the ability to grow by 10 per cent yearly. “It is not impossible (to grow by 10 per cent a year) if over the next five or six years we can boost our infrastructure and improve governance. Fortunately, today, both of these seem within the realm of the possible,” he said.
Basu maintains his projection for nine per cent growth this year, though many do not share his optimism because of rising interest rates and high oil crude prices.
“For this year’s GDP growth, our forecast is nine per cent. In the year just ended, India’s growth was 8.6 per cent. Given that the world is just coming out of a once-in-50-years kind of economic downturn, if India can sustain growth at above nine over the next few years, this will be an outstanding performance by any standard,” he said.
Governance and policy reforms were also the cornerstone of Prime Minister Manmohan Singh’s direction to the Planning Commission for the 12th five year plan, which begins from April 2012.
Planning Commission deputy chairman Montek Singh Ahluwalia had said, “Corruption is a big issue. We think the government systems of procurement, choosing and giving projects have to be streamlined.”
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The issue of governance assumes significance in the wake of a debate, triggered by civil society members, over ways to deal with corruption.
The Prime Minister wanted the next plan to aim for 10 per cent growth per annum to mitigate poverty and provide employment to youth. The ongoing 11th five-year plan had aimed to take economic growth to 10 per cent in the final year of the plan, which is the ongoing year. This target was later revised to little over eight per cent yearly growth on an average, after the global crisis hit.
“If you ask me personally, I think setting a target of 10 per cent (GDP growth) as an average for the 12th Plan is not feasible. We have to make a reasonable assessment of the situation. It would be somewhere
between 9 to 9.5 per cent in the next Plan period,” Ahluwalia had said.
The economy recorded close to 9.5 per cent growth a year on an average in the three years before it being affected by the global financial meltdown, particularly from the middle of September 2008, when US financial services icon Lehman Brothers collapsed.
In fact, India’s economy had expanded by 10 per cent (10.2 per cent to be precise) only once in 1988-89, according to official data. To expand this exceptional growth to each year’s average for five years may be a bit much, a key official said.
A bit slower growth may also be required to cool inflation, ruling at around nine per cent at March-end against the Reserve Bank projection of around eight per cent.
“We are concerned about inflation risks. It is not in a comfortable range. But we should see that the strategy to push high growth cannot be at the risk of high inflation, which is not good as it hampers thepoor,” Ahluwalia had said.