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And miles to go...

Jan 16, 2004

Amidst all hue and cries over India achieving a 7%-8% plus growth rate in FY04, one generally tends to miss the point that this level of growth, and that too on a sustainable basis is not any option but a compulsion for the country. With the population increasing at a constant rate and, more importantly, there being a greater addition to the middle-aged working population, the need to create adequate jobs presses the need for the country to raise its economic growth bar and move beyond the 'Hindu' rate of growth.

* India's rate as projected by the government;
Developing Asia's rate as per the IMF.

A look at the graph above indicates that post the beginning of liberalisation process in India, there were only a couple of years (1998 and 1999) when the domestic real GDP growth surpassed that achieved by nations in the developing Asia region (inclusive of India). This might be attributable to the fact that, during those years, the entire group of East Asian countries was under the throes of a severe economic crisis. Therefore, India grew relatively faster as it managed to hive off the effects of the crisis. This was mainly due to a combination of factors that characterised the Indian economy of those times - small size of capital inflows, the relatively lower convertibility of the Indian Rupee and, most importantly, the inherent strength of the Indian financial system in comparison to those of the 'Asian miracles' (Indonesia, Malaysia, Korea, the Philippines and Thailand).

However, as the East Asian countries recouped from severe pressure of the crisis, their growth rates picked up and outperformed the Indian economy. Apart from this, during these times, India witnessed a phase of political (rapid changes in central government) and economic (sanctions due to the nuclear blasts) changes, and the economy had to bear the burden. Now, when things are looking up, and that the 'world is flocking' towards the Indian shores, there is a need for introspection and deep understanding of what we have achieved and what needs to be done to make our growth strong and sustainable.

To sustain higher growth in the Indian economy and, more importantly, to provide the fruits of this growth towards the development of an average Indian citizen, the government has to play a very proactive role. We face dangers in forms of geopolitical uncertainties, increase in world oil prices, terrorism and the potential return of the SARS virus. Then there are internal concerns like red tapism and divide in the populace on communal lines. But this should not affect the government's policy-making initiatives to take India on a higher growth platter. While we are moving in the right direction in reforming our security markets (to attract greater Foreign Institutional Investors (FIIs)FII money), we ought not forget the equally (or more) important structural reform measures that would be of great help in inviting more of FDI inflows (that are of utmost importance for long-term growth).

Now, the efforts on the structural reforms front would not only require considerable amount of patience, but also continued efforts. Be it institutional build-up, or infrastructure development, or sound monetary policies, the time seems to have come for India to pull up its socks and not give into laxity that the rapid growth of 2003 might bring (much like India's one day loss to Australia, post the solid test match performance). Creation of more jobs, thus resulting into acceleration of demand growth would bring in sustainability that we have been talking all around. And when that happens, India and investors in its growth story would benefit tremendously. But that would take a long time to happen. Patience pays!

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