Maintain growth tempo, India told

If India has to make a serious global impact, it should aim for a sustained GDP growth of 8 per cent.

This can be achieved through a higher national savings rate, greater spending on infrastructure, faster growth of trade and higher foreign direct investment, according to Martin Wolf, associate editor and chief economics commentator, Financial Times, London.

Wolf said India had made rapid economic strides in the last decade, but failed to take advantage of the opportunities afforded by the globalising world economy.

"As a result, India's real income per head has grown at just two-thirds of China's rate." According to him, the services sector, especially the software segment, is doing just fine and does not need any mentoring.

"What is required is increased growth in the manufacturing and industrial sectors, which is critical to the gradual urbanisation of the country." During 1990-2002, while China's GDP grew at a scorching 9.7 per cent, India's rose at 5.8 per cent.

China's growth was pumped up by a ferocious 12.6 per cent growth in industry (6 per cent for India), nearly 12 per cent growth in manufacturing (6.6 per cent for India), 3.9 per cent in agriculture (2.7 per cent for India) and 8.8 per cent in services (7.9 per cent for India).

He said the biggest priorities for the new government were the reallocation of often wasteful public sector spending, substantial reduction in fiscal deficit, and faster integration into the world economy.

"This would rapidly transform the prospects of the Indian people and the place of India in the world." Concurring with Prime Minister-designate Manmohan Singh's seminal work on Indian exports, done as part of his doctoral work at Oxford in 1954, Wolf said this was an area where the country could be a global powerhouse.

Compared with China, he said India's strengths were its stable political institutions and a good legal system. "The financial system in China is cracking as nearly half of the banking assets are non-performing. Plus, there are also incredible overcapacities building up in the country, which leads to huge economic inefficiencies. This will haunt the country down the line, and will impact the global economy." On the other hand, he said India's foreign exchange reserves of $118 billion were strong enough to accelerate capital account convertibility.

"Given India's demographics, this could then allow a lengthy period of faster and more widely spread development."

However, he said the country's weaknesses such as low national savings, a consistent failure to industrialise, weak integration into the global economy, mis-allocation of public spending, poor infrastructure, crippled labour markets and low literacy are big drags in its global march.

He said the world economy had good long-term prospects though also significant short-to-medium term risks.

When queried what advise he would give to his friend Manmohan Singh, Wolf said despite being constrained by allies, Singh should go the whole hog with reforms.

"The allies will not have the courage to bring his government down -- they just can't afford it. That presents a great opportunity for Singh to do significant reforms," he said.