At a steady clip
Looks like we’re in for another bountiful year. The Prime Minister’s economic advisory council (EAC) says the economy is not losing too much steam and India can expect 9 per cent GDP growth in 2007-08 after having grown a blistering 9.4 per cent last year. Coming as it did on a day when two surveys found the country leading, yet again, the world in consumer and business optimism, the number put out by the EAC seems easier to accept than the Reserve Bank of India’s more sedate projection of 8-8.5 per cent GDP growth. Independently, the Confederation of Indian Industry sees the economy growing 9.2 per cent. Overall, numbers to die for, yet the strain of a lagging farm sector — it is projected to grow by 2.5 per cent, way short of the 4 per cent Prime Minister Manmohan Singh is aiming at — keeps getting pronounced. The EAC sees agriculture’s growth slowing as industry and services clock rates in excess of 10 per cent.
With the projection for inflation at under 4 per cent for the year, C Rangarajan, who heads the EAC, has made a couple of interesting points. One, overheating is no longer an issue. Two, the average of 8.6 per cent growth in the economy notched up in the last four years is not a mere cyclical upturn, based as it is in large measure on investment demand. And for every year that the economy registers growth in excess of 8 per cent, two milestones get that much closer. By 2010, India will be creating as many jobs every year as the number of people joining the labour pool, a state of full marginal employment that was a dream even a decade ago. By 2015 we could be approaching the holy grail of eradicating poverty if, as is the case, current growth rates allow the country to lift around one per cent of the population above the poverty line every year.
Of course, keeping the economy on full throttle brings with it associated issues in macro-management. The dollar tide that the India story is drawing has to be tamed, as Rangarajan has warned. The policy options are limited and Rangarajan makes a case for using them in moderation: allow the rupee to rise without hurting exports too much; let money supply grow but not beyond comfort-level inflation; and push up interest rates but not to a point that consumption and investment are stifled.