India’s economy has the potential to grow at more than 9% for a decade and by about 8.5% in the subsequent 10 years but that will require speedier and effective reforms at central, state and local levels, eminent economist and Harvard University professor Lawrence Summers said on Saturday.
“At maximum potential India can grow at 9% for a decade, 8.5% in the decade after that and at 8% in the decade after that,” Summers, president Emeritus and Charles W Eliot professor, Harvard University, said during a session at the Hindustan Times Leadership Summit.
Achieving this growth rate, however, will require unwavering focus on reforms, quicker decision-making and speedier project implementation, he said.
“This is only the potential, not my forecast,” Summers said.
India has become the world’s fastest growing major economy, outpacing neighbouring titan China. While India’s gross domestic product (GDP) grew 7.4% during July-September, China’s grew 6.9% during the same period.
At $2 .1 trillion, the size of India’s economy is among the world’s top 10 but it is still one-fifth of China’s, the world’s second-largest.
If India’s “real” or inflation-adjusted GDP were to grow at over 9% consistently for a decade, the actual economy’s size could triple to more than $6 trillion in 10 years.
Summers did not put out any probable numbers about the potential size of India’s economy, but said he was “very optimistic” about the country.
“India is projected to become the fastest growing economy over the next five years, and will become of a significant size,” he said.
He said Prime Minister Narendra Modi has recognised that the central challenge in attracting investment is effective implementation.
Promoting public health, teaching children, infrastructure creation and regulation of institutions are India’s key challenges.
“Clear recognition is the first step but cannot be the last step,” Summers said. “The global community would like to see how much of this can be carried forward.”
India’s development model, however, may have to be significantly different from China’s export-led manufacturing-driven framework.
“India has to find a different path, which has to be largely service-driven,” Summers said.
Summers, a former US treasury secretary, also said there were chances of the US Federal Reserve raising interest rates soon. “It is very clear. Given the current context, there isn’t any other alternative to raising interest rates,” he said.
The US Fed Reserve is widely expected to raise interest rates later this month in the wake of strong signs of a recovery in the world’s largest economy.
An interest rate hike in the US could trigger an outflow of dollars from emerging markets such as India as global funds move money to the US, seeking higher returns. That could hurt India’s stock and currency markets.