'Barriers need to be removed for 8% growth'

Even though the manufacturing sector has grown in leaps and bounds, problems of low agricultural growth, lack of productive foreign investment and high fiscal deficit continue to dog India since reforms were initiated in early 1990s.

Speaking at a seminar on "Beyond 2020: India in the Global Economy", TN Srinivasan, economics professor at the Yale University, and Rakesh Mohan, secretary, economic affairs, came to the conclusion that India needed to liberalise further and remove infrastructural constraints if it wanted to achieve 8 per cent growth.

"India has managed to cross the 3.5 per cent growth barrier and achieved a growth of 6.5 per cent growth despite various constraints. To reach the next level of 8 per cent, more barriers would have to be removed," Mohan said.

Mohan also said negative public sector savings because of reasons like large PSU losses had affected the overall savings rate despite the fact that private savings in India was the highest in Asia.

"The public sector savings, which was positive till 2001, had since deteriorated by as much as 4 per cent. It is hoped that with the Fiscal Responsibility and Budget Management Act in place, the problem would be sorted out soon," he said.

Srinivasan attacked the government because of its inability in reining in the fiscal deficit, which he said was unchanged from 1991. He added that this was despite a current account surplus, which in a developing country like India, was not advisable.

When Srinivasan picked up the issue of low inflow of foreign direct investment compared with $55 billion dollars that were pumped in China, Mohan defended India's position saying this did not reflect the lack of foreign interest.

"There is inflow of foreign funds in the form of portfolio investment and remittances. This, along with FDI, amounted to $40 billion dollars," Mohan said. He, however, admitted that the problem of foreign investment in specific projects needed to be increased.

Mohan said inculcation of an entrepreneurial nature was required in Indians. "While the Chinese invest their earnings back into the country, Indians only remit them, which just results in swelling of reserves," he said.

Srinivasan also took an adverse view on the growth in the manufacturing sector. He said despite the growth, India, unlike China, had not been able to make a dent in the global marketshare.

The Yale professor insisted that "India needs to stop asking for differential treatment and take a more assertive stand in international trade negotiations".

For instance, rather than being pre-occupied by food security as illustrated by various food-for-work programmes, India should look at opening up the agriculture sector. This would give India a better bargaining power vis-à-vis European countries, he said.