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Double-digit growth ambitions fade for India
Agence France Presse - April 24, 2011
Penny Macrae, New Delhi – India's dreams of attaining double-digit economic growth within the next few years are fading, undermined by high inflation, slow progress on fiscal reforms and an uncertain global outlook.
The ruling Congress party has long wanted to make history as the administration which ushered in growth of 10 percent – touted by successive governments as vital to significantly reduce poverty levels.
But India's main economic planning body looks set to row back on the goal of double-digit expansion when it fixes the country's five-year economic, social and other goals to 2017.
Setting a target of 10 percent average growth "for the next five years is not feasible," Planning Commission deputy chairman Montek Singh Ahluwalia admitted late last week, citing inflation, a need to jump-start reforms and an "international situation full of uncertainty."
However, Ahluwalia said nine percent was a realistic target, as the country of 1.2 billion people struggles to haul millions out of poverty – over 40 percent of Indians live below the extreme poverty line of $1.25 a day, according to the World Bank.
Despite moves to free up its economy, India still runs on five-year plans introduced in 1951 by its first premier, Jawaharlal Nehru, who admired the Soviet Union's central economic planning model. Back then, expansion was forecast at just 2.1 percent.
Fast forward and according to the Planning Commission, average growth during the current 2007-2012 plan period is likely to be 8.2 percent – a huge leap from the 1950s, but far short of the magic double-digit figure.
Finance Minister Pranab Mukherjee optimistically said late last year that he hoped India would "find the means to cross the double-digit growth barrier in the coming year or two".
Premier Manmohan Singh, who initiated the first wave of economic liberalization in 1991 as finance minister, has voiced similar hopes.
But economists say the goal will remain elusive without radical reforms to cut government control over the economy, better skills education for a growing population and heavy investment to improve infrastructure.
Despite government promises, the reform pace has been slow, hamstrung by fierce political opposition. Power cuts last hours, congested ports delay loading and roads are notoriously pot-holed.
In an optimistic scenario, if reforms are implemented quickly, growth could "reach 10 percent as soon as 2020 and reach slightly above that by 2025", said HSBC chief India economist Leif Eskesen.
"If double-digit growth is to be more than just a dream, India must push through further structural reforms that address infrastructure and skill gaps, making it easier to do business," he added.
While hundreds of millions of Indians are still mired in poverty, the step-change in growth has transformed living standards for many millions of others and "remains the most compelling story of our times", said Business Standard publisher T.N. Ninan in a weekend column.
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