Can we sustain India’s growth momentum? Anyone claiming that in
2008-09 India can repeat the 9% real GDP growth it achieved in
2007-08, or that it can sustain the compounded annual growth
rate of 8.8% over the last five years, would be quite wrong. But
is that something to flagellate and worry ourselves sick?
In today’s global context, absolutely not. In 2008, the US will
grow at 1.6% or less. The UK at around 1%. The Euro zone at 1.6%
with luck — but more likely at around 1.2%. Within Europe,
France will be fortunate to clock 1% growth; Germany around
1.5%; Italy won’t grow at all; and Spain will at best do around
1.3%. Japan, seemingly the least hurt by the financial meltdown,
will at best achieve 0.7% growth.
Given this milieu, I am willing to publicly state that India
will close 2008-09 at somewhere around 7.5%. Here’s why.
Agriculture. The monsoons have been kind and the kharif crop is
good. If the rabi harvests are as good, we are looking at 7%
plus agricultural growth. With agriculture accounting for 18% of
GDP, its contribution be 1.3 percentage points of GDP growth.
Industrial growth is worrying, especially after the latest
figures of the Index of Industrial Production. Even so, I’ll
hazard a guess that we will close the year with at least 4.5%
growth — more like 5% if you ask me. Given industry’s 27% share
in GDP, that is 1.2 to 1.4 percentage points of GDP growth.
Now for services, which contributes 55% of India’s GDP. I am
betting that it will still achieve 9% growth. This is partly due
to the Pay Commission kicker; but mostly because the sector is
domestic enough and broad enough to be reasonably resilient.
That, then, implies a contribution of 5 percentage points to GDP
growth. Add the three sectors, and you are looking something
like 7.5% GDP growth in 2008-09.
The only trillion dollar plus country that will achieve higher
growth in 2008-09 is China. No other comparable country even
How do we get this growth in 2008-09 and ensure at least the
same performance in 2009-10? By doing everything that we can to
focus on creating the liquidity to spur growth. We have all been
pleasantly surprised with what the government — specifically the
Finance Ministry, the RBI and SEBI, with the Prime Minister’s
support — has done in the last week to inject liquidity in the
system. And this week began with yet another softening move —
that of reducing the repo rate by 100 basis points to 9%. It has
been an amazing set of dynamic interventions which show that,
when push comes to shove, we have it in us to make big, bold
moves. We will need to continue doing such things in a very
difficult global scenario. Monitor closely; decide quickly; and
Do we have the fiscal room for such big plays? The plus point is
that crude oil and commodity prices are crashing, so these
subsidies will be reduced. For me, however, it matters little if
we expand the deficit a bit to ensure that there is sufficient
liquidity to grease the growth.
Inflation is coming down. Not just in India but globally. We did
what we had to earlier — and I still to believe that we went
totally overboard with tight money. But that’s history. For the
moment. let’s forget about inflation fighting. Global commodity
price crashes are doing the work for us. Just keep the growth
gears lubricated with liquidity. And we’ll come out better than
okay. Which is a pretty darn good thing say in today’s world.