This refers to the Lunch with BS with Surjit Bhalla, "The Angry Optimist" (March 22). The economist says, in his view, the potential gross domestic product (GDP) growth rate of India is eight per cent-plus - with 4.8 percentage points coming from capital stock. In my view, he relies disproportionately on capital stock in his assessment of growth. A move towards eight per cent will only be possible over the next few years, if it culminates from a ramp up in all the main determinants of growth. There are multiple possible paths to eight per cent growth over the next few years. Some of these could be "extreme", depending heavily on one particular input at a time. And this is the kind that Bhalla suggests - GDP growth depending heavily (about 60 per cent) upon capital stock. However, this level of ramp up in capital stock may be more than the economy can handle in a matter of a few years. In our detailed analysis of the Planning Commission's eight per cent growth target for the next five years, we outline a "balanced" path to growth based on a Cobb Douglas production function. Our estimates suggest that about three percentage points of growth from capital stock may be more reasonable and doable over the next five years. Our calculations also suggest that two percentage points of growth can come from the quantity and quality of labour. While there is a large supply of labour in India, it is an advantage only if the labour is suitably skilled and educated to be employable. The balance three percentage points in our scenario is expected to come from the total factor productivity. For a country like India, which is still in its early stages of high growth, substantial productivity growth can come simply from reorganising resources more efficiently. For instance, moving excess labourers from agriculture into more productive jobs in the manufacturing or services sector.
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Pranjul Bhandari New Delhi
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number