Can India grow at 8 to 9 per cent? C. Rangarajan writes...

Can India grow at 8 to 9 per cent? C. Rangarajan writes...: An analysis of the data of the period since 2012-13 reveals two trends. First, there has been a decline in investment rate. Second, the decline in growth rate is greater than the decline in investment...


"Gazing into the future

The rise in investment rate must be supported by a rise in the domestic saving rate. An increase in investment rate supported by a widening current account deficit is not sustainable and is fraught with serious consequences. Only a current account deficit in the region of 1 to 1.5 per cent is sustainable. Incremental capital output ratio is a catch-all variable which is influenced by a host of factors. Obviously, it depends on technology. It also depends upon the skill of the labour force which in turn depends on the quality of the education system. Another catch-all expression “ease of doing business” is also relevant. Bureaucratic hurdles which impede speedy execution of projects need to be removed. Thus improving the productivity of capital needs action on several fronts.
Making a prediction about the future is always hazardous. Many things can go wrong. The Indian economy in the recent past has shown that it has the resilience to grow at 8 to 9 per cent. Therefore achieving the required investment rate to support such a high growth is very much in the realm of possibility. However, we need to overcome the current phase of declining investment rate. Investment sentiment is influenced by non-economic factors as well. An environment of political and social cohesion is imperative. Equally, we can get the ICOR back to a lower level. Raising the productivity of capital will require policy reforms including administrative reforms as well as firm-level improvements. The “potential” to grow at 8 to 9 per cent at least for a decade exists. We have to make it happen."
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M G Warrier


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