Shashank BhideNCAER15 September 2010

Sustaining India’s growth

The long-term story

•Half full glass:

- 20 year growth 7% (R-S) - 10% Kelkar- 5.5% (50 years) Goldman Sachs

• Half-empty glass:

- Low Saving/Investment; Government Dis-saving- Inability to use labour productively- Services cannot outgrow manufacturing forever- Agriculture, infrastructure, regional disparities.

The makers and the breakers of growth

• The drivers– Demography

– Aspiring middle class

– Good institutions

– Low base of productivity

– High TFP growth

• The breakers– Fiscal pressures

– Rising inequality

– Rising regional disparity

– Slow reforms

– Poor governance

– Fragile environment

Sustainability frameworkThe triggers of unsustainability

The safety valves

The macro sceneFiscal imbalance The fiscal space/ reformsCurrent account imbalance Forex reservesPrivate debt Diversification of marketsCapital markets Good regulatorsInflation PDSThe oil price Forex reserves; fiscal spaceBad monsoon Food reservesInequality measuresPoverty HCR PDS/ employment guaranteeMedian income Productivity growthRegional disparity Finance CommissionProductivity measuresReal wage rates Investment; Social sector spendingCapital/ output ratio Infrastructure;Trade openness; competition

The crude price shocks: $/barrel

World output: % YOY

GDP growth patterns (%YOY)

-4

-2

0

2

4

6

8

10

12

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

World US India

Source: IMF WEOs

Non-agricultural GDP growth: % YOY

Accelerating GDP growth: %YOY (10 year moving average)

Threats to sustainability of high growth

• Fiscal sustainability

• Weak social safety nets

• Inadequate investments in human resources

• Environmental sustainability