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 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% — touted by successive governments as vital to significantly reduce crushing poverty.
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% 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 9% was a realistic target as the country of 1.2 billion people struggles to haul millions out of poverty — over 40% 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%.
Fast forward and according to the Planning Commission, average growth during the current 2007-12 plan period is likely to be 8.2% — a huge leap from the 1950s but far short of the magic double-digit figure.
Finance minister Pranab Mukherjee optimistically said late last year he hoped India would “find the means to cross the double-digit growth barrier in the coming year or two”.
Prime Minister Manmohan Singh, who initiated the first wave of economic liberalisation in 1991 when he was finance minister, has voiced similar hopes.
But the goal will remain elusive without radical reforms to cut government control over the economy, better skills education for a burgeoning population and heavy investment to improve India’s infrastructure, economists say.
Despite government promises, the reform pace has been slow, hamstrung by fierce political opposition.
Under an optimistic scenario, if reforms are implemented quickly, growth could “reach 10% 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,” Eskesen added, “India must push through further structural reforms that address infrastructure and skill gaps, make it easier to do business.”
The demands of India’s expanding economy has pushed its creaking infrastructure to the limits. Power cuts last hours, congested ports delay loading and roads are notoriously potholed.
Last week, Goldman Sachs slashed India’s growth forecast for this fiscal year to March 2012 to 7.8% from 8.7%, citing the effects of rising interest rates on economic activity.
The estimate was way below the government’s own nine-percent forecast.
Central bank has hiked interest rates eight times in a year and is expected to raise them again next month to combat inflation which unexpectedly spurted to nearly 9% this month.
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.