Can India achieve 10% GDP growth?
July 6, 2010

Indian Prime Minster Manmohan Singh said New Delhi is working towards a regulatory and policy framework for the aviation industry that will hopefully streamline investments worth US$120 billion (Rs 5.59 lakh crore) into the aviation sector by 2020. Singh was speaking at the inauguration of the new airport terminal building – T3 – in Delhi, which has catapulted India among the global big boys with a capacity to handle over 34 million passengers annually. India is keen to improve total passenger traffic in the country from 44 million annually to 50 million by 2020, for this the Airports Authority of India is also expected to complete work on upgrading 35 non-metro airports by the next year.

In keeping up with its neighbor China, and to attract further infrastructure and non-infrastructure investments into the country, India is also keen to spend US$90 billion over the next five years on road infrastructure. Half of this  will come from the private sector, and 20 percent of the US$45 billion spent by the private sector is expected to be foreign investments, according to Mr Kamal Nath, Union Minister for Road Transport and Highways.

Anticipating returns from these massive infrastructure projects which have kept India lagging behind Asian economies such as China and Singapore, Manmohan Singh said that he expects India’s annual GDP growth rate to hit 10 percent soon. India has averaged 8.5 percent from 2003-08.

Analysts debate this – while the country is unquestionably better poised than most economies to accelerate, a slowing export market, lack or social welfare services, inflation and a bureaucratic way of doing business are holding investments and the economy back.  Domestic India’s inflation is exceptionally high and the rupee is appreciating. Indian wholesale price inflation is 10 percent and consumer price inflation 14 percent.  India stands a pathetic 133rd out of 183 countries in ease of doing business, according to the World Bank’s “Doing Business 2010” report.  It comes 169th in ease of starting a business, 175th in giving construction permits and 182nd in enforcement of contracts. Legal delays further add to the unease of doing business in India. Also unlike China, the government is still riddled with issues of poverty, education and in providing enough nutrition to its millions rather than formulating policies and regulations for growth.

Nonetheless, India has shown her resilience to grow admits the toughest times and once you make it in India, she has a huge market, large profit margins, cheap-skilled labour, good demographics (the working-age share of the population is rising), a stable government and a friendly, democratic work environment. Exports, including service exports, have risen to over 20 percent of GDP from 7.2 percent in 1990, when the country’s economic liberalisation plan was launched. Computer software and business services exports grew at 40 percent per year in the 2004-08 boom, while merchandise exports grew at 20 percent to 30 percent per year, sometimes twice as fast as nominal GDP. India’s savings rate also shot up to about 35 percent in recent years from 23 percent in the 1990s, allowing Indian’s to consume more.  Supplementing these savings with modest capital flows from abroad, India can safely invest 40 percent of GDP per year back into the market allowing her to sustain higher levels of sustained growth.


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