India has 9 percent medium-term growth potential: Chief Economic AdviserOctober 1st, 2008 - 2:09 pm ICT by IANS
New Delhi, Oct 1 (IANS) The global meltdown notwithstanding, the Indian economy, Asia’s third largest after China and Japan, has a medium-term growth potential of nine percent, a top economic adviser to the government has said.”In my view, the medium-term growth potential of the Indian economy is nine percent,” Arvind Virmani, chief economic adviser, Ministry of Finance, told IANS.
In 2005-06 and 2006-07, the Indian economy grew respectively at 9.6 percent and 9.24 percent, which was slightly above the trend.
“What I see happening is the economy will grow below the trend in the current fiscal but return to the trend by next year,” Virmani said.
The Indian economy logged 7.9 percent growth in April-June this fiscal, as against 9.2 percent in the corresponding period last year. The prime minister’s Economic Advisory Council has projected the economy will grow at 7.7 percent in the current financial year.
Virmani is known for his straightforward views on economic issues. “Too many people take short-term occurrences and project them forward, while I try to to look at the overall trend,” he said.
Maintaining that the Indian economy has been on an upward trend since 1994, he added: “The growth trend for the current fiscal year will be 8.9 percent. Remember, it is the trend, and not the actual.
“From 2003-04 to 2007-08, the average growth rate of the economy has been 8.9 percent. I expect the rising growth trend to flatten out at around nine percent.”
Asked if he was being bullish about the Indian economy, Virmani told IANS: “The trend for the next four-five years is of nine percent. This year the economy will grow below the trend, roughly between 7.75 to 8.75 percent.”
According to him, the growth so far has been investment-led, with the investment rate jumping from nine percent to 18 percent in the last five years.
“That is a massive increase in investment. The investment rate last year reached a high of 37.5 percent. This is a massive investment rate, and has been the source of growth,” Virmani said.
He refused to attribute the high economic growth in recent years to the booming global economy.
“If you look at the demand side, the contribution of investment is over 60 percent in these five years, while that of the external sector is a negative 14 percent (that is it had a depressing effect on the economy).
“If we can take policy measures to reduce oil consumption, develop alternative sources of energy, the return to the longer-term trend will be quicker.”