News: Is 10% growth a distant dream for India?

(DNA 25/05/2006) Hong Kong - A pioneering comparative study of the diverging patterns of economic growth of China and India identifies the challenges that the two Asian giants face in charting their future growth, and concludes that “if the current structures of the two economies, are maintained, India will not be able to catch up or surpass China”.

The study, by Dr Emma Xiaoqin Fan and Dr Jesus Felipe, economist and senior economist, respectively, at the Asian Development Bank (ADB), identifies “impediments to investment” as one of the biggest hurdles to growth in India.

India and China, the study says, “face very different challenges in their respective quests for economic growth. India must address impediments to investments so as to increase its investment rate. China must deal with the question of whether investment, the engine of growth, can continue running full steam.”

India’s problem, the study notes, is how to accelerate growth, while China’s problem is how to sustain it.

In an interview to DNA Money from his Manila office, Felipe noted that it would be “virtually impossible” for India to achieve 10% GDP growth rate in the next few years. “This doesn’t mean that it can’t grow by 10% in any one single year,” caveats Felipe. An exceptionally good monsoon could theoretically spike GDP growth for one year, he adds. But it would be virtually impossible, he says, for India to ramp up the investment rate and the rate of capital accumulation in the next few years to the levels needed for it to sustain double-digit GDP growth.

In fact, the study says, given India’s current growth statistics, its annual average growth rate in the medium term is unlikely to exceed 7.5-8%.

That’s not to say, however, that India’s growth story has nothing going for it, or that China doesn’t face challenges ahead.