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Prices likely to put a spanner in growth story

A runaway price line, poor infrastructure and slow project implementation could upset India’s growth applecart, says a latest report.
By HT Correspondent | Hindustan Times, New Delhi
UPDATED ON JUN 16, 2008 08:35 PM IST

A runaway price line, poor infrastructure and slow project implementation could upset India’s growth applecart, a latest report by global research and securities firm Goldman Sachs has said.

The report titled ‘Ten Things for India to Achieve its 2050 Potential’ said the Indian economy has the potential to grow 40 times its current size and probably surpass the US economy, but rapid changes in several key areas were necessary.

“Without better governance, delivery systems and effective implementation, India will find it difficult to educate its citizens, build its infrastructure, increase agricultural productivity and ensure that the fruits of economic growth are well established,” said the report.

India has joined the league of hottest growth economies in recent years. Its gross domestic product (GDP) crossed the trillion-dollar mark in 2007 and has grown over 9 per cent in the last three years.

The report, written by Jim O’Neill, head (global research) at Goldman Sachs, and Tushar Poddar, vice president (research), Asia Economic Research Team at Goldman Sachs India, calls for raising educational standards, improving quality of universities, and controlling inflation.

Inflation rate in India has reached a worrisome 8.75 per cent and many analysts felt it was unlikely to subside any time soon.

It also called for improving the state of infrastructure in the country. According to government estimates, India would require an estimated $500 billion over the next five years for the infrastructure sector.

The report also called for introducing a credible fiscal policy. “We think it would be helpful to develop some ‘rules’ for spending over cycles,” it said.

Further liberalisation of Indian financial markets was necessary, it said, as was increased trade with neighbours.

“India continues to be much less ‘open’ than many of its other large emerging nation colleagues, especially China…we would recommend that India target a major increase in trade with China, Pakistan and Bangladesh,” the report stated.

While the Sino-Indian trade is set to cross $40 billion by 2010, India and Pakistan have taken a host of measures to improve trade relations to achieve $10 billion bilateral trade target in the next two years.

The report also called for increase agricultural productivity. India’s agriculture, that supports about 70 per cent of the total population, grew by 4.5 per cent in 2007-08.

“Agriculture, especially in these times of rising prices, should be a great opportunity for India,” the report said.

It also called for speedier reforms to improve the country’s environmental quality through efficient energy and water usage.

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