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A question of growth

On I-Day, Gaurav Choudhury quizzes the country’s key economic managers on the challenges before our economy.

india Updated: Aug 14, 2010 20:21 IST

On I-Day, Gaurav Choudhury quizzes the country’s key economic managers on the challenges before our economy

The questions before our experts:
1. How do you rate the economic performance of India since Independence?
2. Can we take 10 per cent growth for granted?
3. What is the biggest threat to growth?
4. Will growth end inequality?
5. Will we be able to see India as a developed economy in our lifetime?

Montek Ahluwalia
Deputy Chairman, Planning Commission

1. Undoubtedly much better than it was before Independence. After the initial years, there was a prolonged period where our performance was much worse than many other developing countries. More recently, our performance has improved considerably and right now we are rated one of the fastest-growing large emerging economies. There is no doubt we have made the transition to rapid growth.

2. It would be a great mistake to take high growth for granted. We have the 'potential' to achieve high growth. But there is a lot of work to be done. We are trying to strengthen agriculture, which is important for inclusiveness. We are trying to build infrastructure, important for growth and regional inclusiveness. We are trying to strengthen inclusion and skill development, which are critical requirements for healthy productive population that can generate 10 per cent growth.

3. It is very difficult to tell. People looking at the economy from the outside would consider whether we have the generated the political consensus to push ahead with the pace of policy changes needed for inclusive growth. Personally I would be quite optimistic on this score. There is a more localised issue — polarisation of discontent due to development deficit in specific areas. The problem of the Naxal-affected districts should be put in this category.

4. This assumption is not correct. Depending on the situation, growth can be more equalising or less equalising. Certainly, when growth is taking place in an environment where there is more competition, where skills are more broadly spread, where education is easily accessible to all, this growth is more equalising. There are also inherited equalities that you cannot get rid of. But any effort to solve our problems by giving up on growth would be doomed to fail.

5. Over the next 20 to 30 years India could have a per capita income above $10,000 (about Rs 4,60,000 ), usually regarded as the cut off-level for being counted as an industrialised economy.

C. Rangarajan
Chairman, Prime Minister's Economic Advisory Council

1. It is truly impressive when compared with the performance in the first 50 years of the 20th century. In the first half of last century, growth was almost negligible. In the first four decades after Independence we laid the foundations of economic development, but growth was modest. We saw the picking up of growth in the 1980s that has gathered momentum since 1991.

2. The Indian economy has the 'potential' to grow at the rate of 10 per cent. The savings and investment picture is encouraging. India's investment rate exceeds 36 per cent of GDP. This should enable us to comfortably grow at 9 per cent. To achieve 10 per cent growth in a sustained way, we also need a more hospitable global economic environment.

3. Two sectors — agriculture and infrastructure. Unless agriculture grows at 4 per cent or above in a sustained manner, it might come in the way of the overall economy growing at 9-10 per cent. Generally, growth in infrastructure is a shade higher than the overall economy's growth. The sector that is important in this respect is power. We need to add 50,000 MW of additional capacity in the next two years.

4. Growth in itself cannot reduce inequality. The trickle down effect will work as the economy grows. But for the trickle down process to be effective, the economy has to grow at a strong rate. So long as there are vulnerable and disadvantaged sections in society, poverty also needs to be attacked through direct measures. High rate of growth helps the government to launch such schemes.

5. India will emerge as one of the dominant economies over the next five years. In terms of aggregate GDP, India is already the fourth or the fifth in the world. It may move up one or two places. In terms of per capita income there is a long distance to travel. It may take at least another two decades before we can see the per capita income rising to respectable levels.

Kaushik Basu
Chief Economic Adviser, Ministry of Finance

1. A mixed bag. Immediately after Independence, there was great expectation from India but, gradually, that tapered off as India's GDP growth remained stubbornly stuck somewhere between 3 and 3.5 per cent. The first year of sharp growth hike was, interestingly, in 1975-76, the Emergency year. After the reforms of 1991-93, our economy was on a higher growth trajectory. After 2004, for three consecutive years, India's GDP grew by more than 9 per cent per annum. It changed how the world viewed us.

2. Nothing in the economy can be taken for granted. But short of political turbulence, it seems reasonable to expect that we will be on a sustained 8.5 per cent plus growth path. To get to 10 per cent will need some sweat and toil to ensure better income distribution, because that is at the heart of political instability. We also need administrative reforms to curb corruption and curtail bureaucratic delays.

3. Political instability. The breeding ground for this is our poverty and the fact that large segments of India's population feel marginalised and excluded. Even if we do not have compassion and morals, a better income distribution is in our self-interest. Otherwise, political instability will come home to roost. I am hopeful that India will tackle widespread poverty before it jeopardises our other achievements.

4. The free market is good at efficiency and growth, but the market doesn't have a natural mechanism to address the issue of equity. That’s the government’s responsibility. The government has to refrain from meddling in markets and direct that energy to empower the poor. Our redistributive policies will have to be intelligently designed to ensure that leakages and pilferage come down.

5. If our per capita real income continues to grow at 7 per cent, the average person will have eight times the current income 30 years from now. But there are caveats. First, to make it happen, we’ll need intelligence and commitment. Second, we mustn’t forget that while we’ve done phenomenally well on growth, we haven’t done so in poverty eradication — and this is India’s big challenge.