Growth to break into a gallop

The Indian economy is finally out of the rut — and is expected to grow at a robust 8.5 per cent in the next fiscal.

The annual economic survey — which recapitulates the economic developments of the current year (2009-10) — is even more optimistic about the future and says the economy can breach the 9-per-cent-growth mark in 2011-12.

The return to a 9 per cent growth will come after a three-year hiatus: it’s a growth rate that hasn’t been seen since 2007-08.

Beyond 2011-12, the survey is even more optimistic, stating that India can emerge as the world’s fastest growing economy within the next four years.

“It is an indication that the economy is well on its way to revival,” says D.H. Pai Panandikar, president, RPG Foundation. His views were seconded by Siddhartha Roy, economic adviser to the Tata group. “Things have very clearly improved,” Roy said.

The survey’s prediction is similar to the projections of the Economic Advisory Council to the Prime Minister last week.

The panel had said the economy would grow 8.2 per cent in 2010-11 and 9 per cent in 2011-12.

The survey points out that the 7.2 per cent economic growth in 2009-10 (as the advance estimates by the Central Statistical Organisation showed) is broad-based, with seven out of the eight sectors and sub-sectors growing at 6.5 per cent or more.

Agriculture is the only sector that is proving to be a laggard with growth rate at a negative 0.2 per cent.

The Indian economy has been one of the least affected by the global crisis. “In fact, India is one of the growth engines, along with China, in facilitating faster turnaround of the global economy. Risks, however, remain,” the survey said.

The growth in 2010-11 is not difficult given the economy’s performance this year, says Panandikar. The survey, however, cautions that this 8.5 per cent growth can be affected by the poor performance of the monsoon and a weak global economic recovery.

“The optimism in the survey stems from the fact that the economy has done so well in a year which has seen the worst drought in 30 years and the worst global financial crisis in 70 years,” says D.K. Joshi, principal economist at rating agency Crisil.

What it doesn’t say, he points out, is whether the growth in 2010-11 will come on its own (in the absence of the two downside risks) or whether policy makers will have to take steps to ensure it. “It does not clearly articulate what will drive this growth. That should have been done.”

While, noting the robust and sustained growth story, the survey cautions against any complacency.

“Because it is possible for the Indian economy to develop even faster and also to spread the benefits of this growth more widely than has been done thus far.”

Taking the growth versus equity debate firmly by the horns, the survey says that “the policies for promoting growth need to be complemented with policies to ensure more and more people join in the growth process and… mechanisms to redistribute some of the gains to those who are unable to partake in the market process and, hence, get left behind”.

The survey suggests that this can be done by redefining the role of the state – from an intrusive, all-controlling one to an enabling one.

The idea, it says, is not to have the government directly deliver everything to the citizens, but to create a market-friendly atmosphere where individual enterprise can flourish and citizens can provide for one another while the state steps in to help the poor get basic minimum services.

In this context, it suggests new ways of delivering services to the poor, among them food coupons for better targeting of the public distribution system and toning up the bureaucracy so that public services are delivered more efficiently.