Aspiring for double-digits

Prime Minister Narendra Mod's aim to achieve a double-digit growth may be a distant vision, given the current state of the Indian as well as global economy. The US-China war has worsened the global scenario, making high Indian economic growth virtually impossible.

China is perhaps the only economy that has grown in double-digit for two-three decades on a sustained basis on the back of structural reforms and massive skilling of over billion people besides quality health and education in the decades preceding its high growth.

Though India had grown at over 10 per cent in market prices and a little over 9 per cent at factor cost for four consecutive years during 2004-08, it could not sustain the numbers due to poor infrastructure and a lack of skill development, leading to overheating of the economy. Subsequently, the 2008 global crisis pulled down the economy further and India is yet to rise back to its high growth path. This is despite the fact that the new method of GDP calculation has inflated India's growth by 1.5-2 per cent.

Analysts differ on whether double-digit growth is sustainable or not. But, many say that no country barring China has had high growth for a long period continuously. Japan, South Korea or miracle countries of South East Asia too have not achieved double-digit growth for over decades. They achieved at best 8-9 per cent. "One swallow does not make a summer," former RBI governor and 14th finance commission Chairman YV Reddy, once said on China's high growth. He, however, added that India can at best achieve a sustainable growth of 8 per cent, which is good enough for it to become a developed country in a decade or so.

Endorsing this viewpoint, Crisil chief economist DK Joshi said, on Monday, his rating agency has forecast that a 10 per cent growth is not possible for India given the current global economic scenario. "Our forecasts do not support double-digit growth," he said adding that it can happen in an odd year but certainly not on a sustained basis. On a continuous basis, Joshi said India can grow at 7.5-8 per cent because of the structural reforms carried out by the Modi government.

When India grew at over 9 per cent during the UPA regime, global growth was around 5 per cent. Global growth is around 3 per cent now and is expected to slow down after a year or two. Thus, a double-digit growth can at best be a pipe-dream.

India's former chief statistician, TCA Anant, however, said today, double-digit growth is in the realm of a possibility and if China has done It, India too could do it. But what needs to be done is a matter of debate and NITI Aayog is already working on it. "I am an optimist and India can achieve it."

After an overdose of fiscal and monetary stimulus in the wake of the 2008 crisis, India achieved near 8 per cent growth when Pranab Mukherjee was finance minister in the UPA government. Buoyed by this good growth, Mukherjee suggested, at a full Planning Commission meeting chaired by Prime Minister Manmohan Singh, that the growth target should be 9 per cent for the 12th five-year plan and not 8 per cent. The meeting was convened to approve the approach paper for the 12th five-year plan. It was the Prime Minister's Economic Advisory Council Chairman C Rangarajan, who struck down Mukherjee's proposal and said even 8 per cent will be a tough ask considering the global and Indian economic situation. Now, looking back, the 12th plan could not achieve even the average 8 per cent growth set by it.

The current economic dynamics can at best support an economic growth of 7.5 per cent. To achieve 8 per cent GDP growth, India's exports will have to grow at 12 per cent annually and to achieve 9 per cent GDP growth, the exports will have to grow at 20 per cent and that's what happened during 2004-08 when GDP growth was over 9 per cent, former National Statistics Commission Chairman and top economist, Pronab Sen said.

If India were to grow at 10 per cent, it would have to pursue export-led growth like China. Nearly 40 per cent of China's GDP came from exports as against India's mere 20 per cent. China virtually funded its exports to Africa, thereby, resulting in Chinese banks suffering huge non-performing assets. The recapitalisation of Chinese banks was done by its huge foreign exchange reserves of $3.5 trillion that was built out of its current account surplus.

India's $420 billion foreign exchange reserves are built through borrowing as India runs huge current account deficits. So, the foreign exchange reserves cannot be used to recapitalise the banks as it is not government money. In this scenario, India cannot adopt the Chinese model to fund its exports. Also, to achieve 20 per cent exports growth itself, big-ticket export reforms have to be carried out, particularly in infrastructure, which can happen in the medium-term only.

Former finance minister and Congress leader P Chidambaram is right in saying, "The tyres of three of the four wheels on which the economy rides are punctured. Firstly, exports, secondly private investment and gross fixed capital formation. The only tyre that is ok is public expenditure. The exports were in negative territory not long ago, private investment is not picking up due to excess capacity and capital formation which has come down to 28.5 per cent from a high of 37 per cent during 2004-08."

With most of the cylinders of India's growth engines not firing fully, it seems overambitious for Prime Minister Narendra Modi to fix such a stiff target of achieving double-digit growth for the Indian economy. As Mahatma Gandhi said 'if you aim at the sky, you will reach the tree top'. So, Modi is perhaps compelling NITI Aayog officials to pull up their socks so that by aiming for something that is nearly impossible, he can make his government find ways to achieve at least a realistic 8-8.5 per cent growth in the next year or two.

(The views expressed are strictly personal)