9% growth makes India Influential

The Indian economy will finally be out of the woods in 2011-12 with the gross domestic product expected to breach the 9 per cent mark after a three-year break.

Growth story back,will gather pace

The Indian economy will finally be out of the woods in 2011-12 with the gross domestic product (GDP) expected to breach the 9 per cent mark after a three-year break. The Economic Survey,2010-11,tabled in Parliament today by finance minister Pranab Mukherjee,projects the economy to grow 9.25 per cent next fiscal.

Kaushik Basu,chief economic advisor in the finance ministry and the principal author of the Economic Survey,said if India continues its growth sprint of over 9 per cent in the coming years,inflation will rise by 1.5 per cent a year. The comfortable level of inflation is 3.5 per cent now. A growth sprint will push it to 5 per cent, he said.

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The downsides are a sharp deterioration in weather conditions,a disproportionate spike in crude oil prices and a downturn in industrialised nations. But,the expectation is that there will not be a serious downturn in industrialised nations. Or more accurately,a second dip recession is a very low probability event, the Survey said.

Basu expects the pace of development to only gather pace in the next 5-10 years. Two things suggest this,it said. One,higher savings by the working population and momentum in investments. Two,the fraction of investment towards building up infrastructure is rising. This means that the ratio of investment to ICOR (incremental capital-output ratio which approximately gives the GDP growth rate) will only rise. Savings and investment rates would not remain the effective drivers of GDP growth once the economy operates close to its capacity,according to Basu. Growth will depend more on skill development and innovative activity in the country, he said.