News: India is on threshold of trillion-dollar club

(DNA 08/02/2007) Mumbai - India is set to become a trillion-dollar economy as early as next year, if the latest figures released by the Central Statistical Organisation are any indication.

The economy, which has been on a high growth path of 8-9% for the last three years, is expanding faster this year at 9.2%, it said.

Only a few days ago, the CSO had revised the GDP growth figure for the last financial year to a scorching 9% from 8.4%. On Wednesday, it put economic growth this year at 9.2%.

"Reforms are driving growth," Finance Minister P Chidambaram said. "Reforms have brought in investment, fostered competition, and enhanced productivity and efficiency."

Most optimistic projections so far had been of a growth rate of close to 9% in 2006-07. The economy had expanded 9.2% in the second quarter of the current year and 9.1% in the first half.

The latest CSO figures suggest that India will be an $850 billion economy this year, well set to join the big league of trillion-dollar economies as early as next year. There are nine countries in that club now (see table).

At 9.2%, India's GDP growth in 2006-07 is a full percentage point less than that of China, which registered 10.4% growth in 2006.

But India's growth is clearly the world's second fastest this year. In fact, this is the highest growth for the Indian economy since 1987-88, when GDP grew 10.6 per cent on the back of the previous year's low caused by drought.

"This is good news," said Rajiv Kumar, director and chief executive, Indian Council for Research on International Economic Relations, "though it draws attention to urgent supply-side reforms if this growth rate is to be sustained. There are signs of overheating and that needs to be managed."

The 9.2% growth estimated by the CSO, Kumar said, is beyond the RBI's latest projections. "The central bank is likely to see this from the demand side and we could, therefore, be in for another round of interest rates hikes," he said.

Significantly, the 9.2% GDP growth this year comes about despite the slowdown in farm-sector growth to just 2.7% from last year's robust 6%.

Though 65 crore Indians still depend on agriculture for their livelihood, it is evident that the broader economy is now firmly driven by the dynamism of its industrial and services sector.