Glide path to growth

Union finance minister Jaswant Singh has come up with a new theme to convey the “feel good” feeling with his “India Accelerating” theme. In a presentation premiered at The Financial Express awards for women in business last week, Singh put out a series of numbers to show that the economy is on an upward trajectory in terms of growth. This is unquestionably true, especially in per capita terms. After decades of just about 1.5 per cent growth in per capita incomes, the 1980s witnessed close to 3.0 percent annual growth in per capita national income. This has gone up to almost 4.0 per cent in the 1990s. With the population declining and national income growing at a higher rate every decade, the economy is on an accelerating trajectory. The economy grew at near zero per cent per annum in the half century from 1900 to 1950, and at 3.5 per cent from 1950 to 1980. In 1980-2000 the rate of growth was higher at over 5.5 per cent and more recently it has inched above 6.0. Singh announced last week that the third quarter of fiscal 2003-04 ended with a growth rate of close to 9.0 per cent. If the last quarter does equally well, the year will end with upwards of 8.0 per cent growth. Even if the economy now grows at an average of 6.5 per cent over the next five years, it would have moved on to a new growth trajectory.

While statistically the case for “India Accelerating” is strong, to sustain this optimism it is essential that the leadership focus on improving governance and the efficacy of public institutions. Moreover, the growth acceleration of the last decade came mainly from the services sector. Over the next decade both agriculture and industry must contribute more with improved productivity and increased investment. All three sectors should also be able to generate more jobs so that the growth acceleration is equitable and balanced. What this means, therefore, is more economic reform and liberalisation that encourages increased investment while making the economy more competitive. There are no short cuts to development.