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Can achieve higher growth rate: Rangarajan
KOLKATA: The Indian economy may be witnessing a phase of relatively low growth but things are likely to improve, believes C Rangarajan, chairman, economic advisory council to the Prime Minister. He is also the president of the Indian Statistical Institute (ISI) and addressed the students and faculty at its 48th convocation in Kolkata on Friday.
"It is true that the Indian economy presents a picture that is different from what it was three or four years ago when you (the students) entered the institute. The Indian economy is currently passing through a phase of relatively low growth. But this should not cloud the fact that over the eight-year period beginning 2005-06, the average annual growth rate has been excess of eight per cent. We shouldn't under estimate the structural changes that the economy has undergone in the last two decades. These have imparted greater resilience to the system and the economy is now more competitive," Rangarajan said.
After growing at a rate of nine per cent for three consecutive years, there was a slump to 6.2% in 2008-09. According to the PM's economic advisor, the Indian economy was able to protect itself reasonably well during the global crisis and recovery was swift and sharp. After a growth rate of 8.2% in 2009-10 and 9.3% in 2010-11, the economic activities moderated quite substantially in 2011-12.
"The overall growth rate came down to 6.2%. However, the results of the Annual Survey of Industries released last week indicate the that the growth in industrial sector can be substantially higher than what was indicated earlier. We should not, therefore, be surprised if the revised growth rate - that might be announced a little later - can be one per cent higher than what was indicated earlier. Though the growth rate has been moderate in 2012-13 and 2013-14, there is potential for improvement. While the investment rate has fallen, even as late as 2011-12, the gross fixed capital formation rate, a measure of accumulation of fixed assets by the business, government and households, was around 30.6%," Rangarajan added.
Under normal circumstances, given the recent trends in incremental capital-output ratio of four, a gross fixed capital formation rate of 30.6% should have given a growth rate between 7 and 7.5%. However, in reality it turned out to be a mere five per cent.
"Economic growth has in fact declined much more steeply than what is warranted by the decline in investment. This may be because projects have not been completed in time or complementary investments have not been forthcoming. In some cases, this could also be due to non-availability of critical inputs such as power and coal. The saving and investment rates are high and if we are able to find ways to compete the projects speedily, rapid growth in income is possible even in short run. While the existing level of investment rate can help us to achieve a growth of 7.5%, higher level of savings and investment can take us back to the very high levels of growth that we had witnessed earlier. Raising the savings rate through fiscal consolidation has become imperative," Rangarajan said.
