Why is Economic Growth still so Low? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 8 June 2013
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Why is Economic Growth still so Low? A  A  A


- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Last week, the latest economic growth figures came in indicating that India's growth rate had slowed to 5% for the fiscal year ending March 31. This is the lowest growth rate the country has seen in the last decade. As growth has fallen in the last couple of years, the major culprits behind the fall are still the same.

The sector that performs strongest is services. Across different categories of services, growth has ranged between 6% and 10%. In particular, finance, insurance, real estate and business services grew at 9.1%, one of the main bright spots of the economy.

Where we tend to lag behind is in manufacturing and agriculture. Agriculture grew at 1.4%, and the food production is not even enough to keep up with population growth. Around 50% of the country works in agriculture, and average incomes have barely increased for them.

When it comes to manufacturing, the story is even worse. Manufacturing grew at 2.6%, well below what it could potentially grow at. While agricultural growth is unlikely to significantly exceed population growth, manufacturing has the potential to grow at the same rate as services, in the region between 5% and 10%.

The economic story in the last few years has been that we are very good at producing services, but we struggle when it comes to manufacturing goods. It is somewhat of a mystery. Why is it that we can produce great engineers, doctors, lawyers, and businessmen, but cannot manufacture goods efficiently? This is despite the fact that manufacturing requires less education for workers, and relatively lower expertise as compared with producing services.

The most common explanation is too much government red tape, and poor infrastructure. In order to setup a factory to manufacture goods, there are various regulatory hurdles to go through. Unfortunately, we have done a terrible job in attempting to reduce red tape and allow manufacturers to operate more freely.

The final piece of the puzzle is infrastructure. Infrastructure is improving over time, but we can do better. Again, corruption and regulatory hurdles prevent infrastructure from improving at a fast enough pace.

The good news is that our growth problems are internal. It is not due to global crises that we have no control over. Instead, it boils down to a simple issue: When it comes to manufacturing goods or investing in infrastructure, things just take too long. And this is why our growth remains low.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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4 Responses to "Why is Economic Growth still so Low?"

Mk

Jun 9, 2013

rise in contribution of service sector in economy leads to rise in corruption in the society.manufacturing and agriculture,the real prime movers of honest economy, are faltering and simultaneous increase in corruption all around explains everything as why growth rate has come down.every one wants to bet their money in services for quick return.

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Mk

Jun 9, 2013

rise in contribution of service sector in economy leads to rise in corruption in the society.manufacturing and agriculture,the real prime movers of honest economy, are faltering and simultaneous increase in corruption all around explains everything as why growth rate has come down.every one wants to bet their money in services for quick return.

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swapan kumar saha

Jun 9, 2013

Dear Sir,
The author has rightly pointed out the reason of slow down of the Indian economy.Why a person will become a labour for agriculture sector for a daily wages of Rs 100 -150 app.If gets a job in state PSU say Electricity Companies as line man or Sahayak his daily earning is around Rs 500-600 plus pension for old age.
There is no social security for agriculture sector. Subsidy is not going to their pockets it is going to some other pockets that author knows better than me.
I have seen in sate run electricity companies that our Engineers are doing white collar job. For overhauling turbine and generators of hydro power stations, we have to call Japanese people .It is interesting to note that persons coming from japan are Fitters, charging around Rs 100000 per day this is in addition to free air journey. Food and lodging are provided free.
To make agriculture sector lucrative it should be remunerative and it should run in the same way the organised sectors are running like oil,electricity ,mining (coal) etc.
Thanks and regards.
CMA SKSaha.

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Tauro D.

Jun 9, 2013

I would request you to revisit the percentages in relation to the data base. If the IIP is so low, that would mean how many millions are unemployed?

Also, it would be interesting to know what percentage of employ able persons?

The policy changes so direly needed to lift the economy are not on the horizon even after next year's election.
What is your suggestion - a change in the form of our governance.

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