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India 2050: Goldman gets more bullish

india Updated: Jan 24, 2007 19:46 IST
Arun Kumar
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With the current growth rate of over 8 per cent, which is sustainable, India will challenge the global economic order in the next 15 years and by 2050 it will be second largest economy after China overtaking the United States, according to a Goldman Sachs' Economic Research Report on Global Economics released this week.

The report by the world's leading investment banker says India can sustain the growth rate of about 8.4 per cent till 2020 and on an average basis should be 6.9 per cent until 2050.

"The underlying causes for the increase in efficiency of private firms have been acceleration in international trade, financial sector growth, and investments in and adoption of information and communication technology," it says.

"India's current growth rate of around 8 per cent can be increased 10 per cent, if the efficiency level in term of productivity to capital employed is being increased and also the saving rate increased marginally to sustain the investment.

India needs to boost its investment rate by another 16 per cent of the GDP to achieve and sustain a growth rate of 10 per cent," the report says.

In addition, it says that the labour movement from agriculture to industry will fuel the growth by one per cent. "The movement of surplus labour away from low-productivity agriculture to high productivity industry and services contributes about 1 percentage point to annual GDP growth. India is well positioned to reap the benefits of favourable demographics, including an urbanisation bonus over the long term."

Interestingly, the report, citing the example of the Golden Quadrilateral Highway Project, says it will help India to jumpstart its competitiveness, given the fact that dismal infrastructure has inhibited growth. "The effort echoes the US's construction of its national highway system in the 1920s and 1950s, which fuelled commerce and development, and created suburbs," the report says.

However, it warns that India will need continued progress in reducing the fiscal deficit and in enhancing education at all levels. "We also see threats to the growth process from protectionism, supply-side constraints to doing business, and environmental degradation," it says.

Goldman Sachs has revised its estimates from the previous report on BRICS (Brazil, Russia, India and China). India's growth acceleration since 2003 represents a structural increase rather than simply a cyclical upturn, it says.

"Productivity growth is driving the increase, and explains nearly half of the overall growth. We expect productivity growth to continue over the medium terms. We projected India's potential or sustainable growth rates at about 8 per cent until 2020.

The implication is that India's contribution to world growth will be even greater and faster than implied in previous BRICs research," the report says.

Email Arun Kumar: arunkumar @hindustantimes.com

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