Channel: Economy

Thursday, December 09, 2010
Can India achieve double digit GDP growth rate?
While the rise of India is on the radar of the world, the equally intense debate is on about the potential of India’s future growth. With the western world struggling, India's economic growth has become crucial for the world.
Tables & Graphs
 

While the rise of India is on the radar of the world, the equally intense debate is on about the potential of India’s future growth. With the western world struggling and India ready to reap the benefit of demographic dividend, India’s economic growth has become crucial to the world. The economic recession has turned into an opportunity for emerging countries to show their prowess to the western world and so aftermath of the crisis has given more responsibility to the countries like India.

 

The rise of India on international arena does not come without risk. The countries loosing the growth track may not be able to sustain their growing clout and so India’s economic growth is vital both for its internal as well as external stakeholders and in this context India’s ability to attain double digit growth rate has become even more significant. India’s Finance Minister recently argued in favour of India achieving the double digit growth rate in next five years. Though there are set of assumptions to be valid for this to be true, the confidence does not seem to be misplaced at all.

 

A look at the structure of Indian GDP clearly shows that growth pattern has witnessed phenomenal changes in post reform period. While in 1990 agriculture used to be 32% of Indian GDP the share in 2009 has fallen to 14.6, less than half of 1990 value. The loss in the share has been well captured by Service sector and it has moved to 57% a rise of 40% from its previous value. This shift in weightage has far reaching ramifications over the GDP and its growth rate.

 

A look at the sectoral growth of Indian GDP suggests that Agriculture has not been able to show high growth rate and rarely its growth has been more than 4%. There are many bottlenecks in agricultural sector and they have proved to real dampener for the growth. Still there are reasons for being optimistic. As the private sector is now looking for rural demand in India, the growth of this sector has now many new stakeholders. With entrepreneurship on the rise and some of the backward states in India showing signs of break from traditional Hindu growth rate, this sector is now poised to grow with higher trajectory of growth. There is clear sense of urgency in the government now to bring rural economy at par with urban and this is definitely going to help the Farm sector.

 

Another component of GDP, which is important for India, is Industry. Industry has been the most stable sector of Indian GDP with contribution remaining at 27-28% share in overall GDP of India. Apart from manufacturing rest all sub sectors have demand supply gap. It clearly implies the scope for untapped growth of the sector. Mining which is around 2.4% of GDP has immense potential and this has been displayed with 10.6% of growth in 2009-10. If there is support from the government, there is no way this sector can be stopped from registering more than 10% growth. In a country with billion plus population sectors like electricity and construction are bound to grow as the demand outreaches the supply by a huge margin. With India getting access to nuclear energy and energy high on the agenda of the government things can only get better from here. In recent years, India has witnessed a plethora of private enterprises that have invested heavily in infrastructure and construction sector. So overall the Industry in India seems to be self sustaining and has sufficient growth drivers to maintain the momentum.

 

The sector which has moved into auto growth mode in India is service sector. Indian middle class population of 400 million is key to growth of service sector in India. Service sector is becoming crucial to Indian economy as it is now 57% of GDP and going forward this is likely to become 62-64% of GDP by 2015. Trade, transport, financial service, insurance & personal service constitute the main component of Service sector. With India signing FTA with many trade blocks and Service sector likely to get its pie in the bilateral & multilateral agreement, the sector has enormous potential. India’s domestic demand is also growing at rapid pace. Though there are concerns based on outsourcing and job fears in western world, India’s growing clout as economic powerhouse may well help it to combat this successfully. If past is to believed, this sector will carry the growth momentum with private sector taking the lead.

 

Holistic view is that, India has the potential to unlock the double digit growth rate. If we expect a continuous change in the structure of GDP (table 4) and a decent growth rate for all three sectors, India looks well on track to achieve the double digit growth. The percentage share of Agriculture is decreasing by almost 1% a year and this loss is grabbed by service sector. So by 2015, the share of Agriculture may dip to 9% and that of Service sector may rise to 63%and this may prove to be a game changer to India’s GDP growth rate. The modest growth rate of 4%, 10% & 11% for Agriculture, Industry & Service respectively will result into a cumulative growth of 10.1% for GDP. The obvious thing to understand is that while there are impediments to this growth structure, there have been instances in the past when these sectoral growth rates have been achieved.

 

So all going well, the double digit growth rate does not seem to be a mirage for India. Perhaps the western world has been able to get this sense of “India rising” well in advance and there can’t be better time to explain this than the current scenario. The visit of US president Barack Obama, UK premier David Cameron and French president Nikolas Sarkozy to India in 2010 are just validating this fact.

 
 

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