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Sustaining India’s growth
Shashank Bhide
NCAER
15 September 2010
The long-term story
• Half full glass:
- 20 year growth 7% (R-S)
- 10% Kelkar
- 5.5% (50 years) Goldman Sachs
• Half-empty glass:
- Low Saving/Investment; Government Dis-saving
- Inability to use labour productively
- Services cannot outgrow manufacturing forever
- Agriculture, infrastructure, regional disparities.
The makers and the breakers of growth
• The drivers
–
–
–
–
Demography
Aspiring middle class
Good institutions
Low base of
productivity
– High TFP growth
• The breakers
– Fiscal pressures
– Rising inequality
– Rising regional
disparity
– Slow reforms
– Poor governance
– Fragile environment
Sustainability framework
The triggers of unsustainability
The macro scene
Fiscal imbalance
Current account imbalance
Private debt
Capital markets
Inflation
The oil price
Bad monsoon
Inequality measures
Poverty HCR
Median income
Regional disparity
Productivity measures
Real wage rates
Capital/ output ratio
The safety valves
The fiscal space/ reforms
Forex reserves
Diversification of markets
Good regulators
PDS
Forex reserves; fiscal space
Food reserves
PDS/ employment guarantee
Productivity growth
Finance Commission
Investment; Social sector spending
Infrastructure;Trade openness; competition
The crude price shocks: $/barrel
90
80
70
60
50
40
30
20
10
0
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
1988-89
1987-88
1986-87
1985-86
1984-85
1983-84
1982-83
1981-82
1980-81
1979-80
1978-79
1977-78
1976-77
1975-76
1974-75
1973-74
1972-73
1971-72
World output: % YOY
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
GDP growth patterns (%YOY)
12
10
8
6
4
2
0
-2
World
Source: IMF WEOs
US
India
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
-4
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Non-agricultural GDP growth: % YOY
12
10
8
6
4
2
0
-2
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
1988-89
1987-88
1986-87
1985-86
1984-85
1983-84
1982-83
1981-82
1980-81
1979-80
Accelerating GDP growth:
%YOY (10 year moving average)
10
9
8
7
6
5
Agriculture&allied
Industry
4
Services
Total
3
2
1
0
Threats to sustainability of high growth
• Fiscal sustainability
• Weak social safety nets
• Inadequate investments in human
resources
• Environmental sustainability