Union finance minister P. Chidambaram said on 8 February that India’s gross domestic product (GDP) is likely to surpass $1 trillion (Rs44.35 lakh crore) next year, making it the third Asian economy to go past the mark.
“We are on a high-growth path. All indicators point towards another year of high growth,” Chidambaram told a business conference. India’s GDP has nearly tripled since 1991, when Prime Minister Manmohan Singh, then finance minister, introduced free-market measures that cut red tape, removed state-enforced capacity caps on steel and cement makers, and allowed overseas companies to set up operations locally.
GDP is estimated at $922 billion in the year ending 31 March, the Central Statistical Organization said on 7 February. The estimate is based on current market prices.
“The reform process has effectively built a natural floor to the growth pattern,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd in Mumbai. “The economy will be driven by higher government spending on ports, roads and other infrastructure projects and rising consumption demand.”
India’s record economic expansion has helped double per capita income in the last eight years, as the number of households earning at least $10,000 annually rose more than 20% a year, according to management consulting firm McKinsey & Company.
“India is witnessing the biggest boom period,” Chidambaram said. “Investment is buoyant and robust, savings are rising,” he added. Growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, is stoking demand for products ranging from cellphones and cars to houses, stretching the capacity of Maruti Udyog Ltd and others.
“Higher spending on roads, ports, telecommunications and other infrastructure projects will also help sustain growth,” said N.R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi.
Chidambaram announced in his Budget speech that the government spending on infrastructure including ports, power generation and roads will be raised by 40% to Rs1.34 lakh crore in the year starting 1 April. Better infrastructure may see more companies follow Nissan Motor Co. and Renault SA, which are investing in factories in India.
The second-fastest expansion among the world’s top 15 economies pushed inflation in India to a two-year high last month. The ruling Congress party lost two state elections last month as inflation eroded the spending power of people.“Inflation is a cause for concern and I am confident that it will be moderated,” the finance minister said.
Inflation, running at 6.05%, has stayed above the Reserve Bank of India’s tolerance level of 5% since September, and the central bank may raise its key overnight lending rate next month for the second time this year to curb prices.
The finance ministry took measures to slow inflation, including cutting import duties on alloy steel, cement, copper, aluminium and chemicals such as sulphur. It further reduced the import duty on palm and sunflower oils and corn and banned export of wheat to augment local stocks.
Addressing the supply-side issues is the “durable answer,” to curb inflation and the “supply side will be augmented only if we continue to grow,” Chidambaram said.