Global financial services major Barclays Capital has said that India’s economy is likely to register an annual growth rate of 7-8 per cent, below the country’s full potential, in the next 3-5 years.
“We expect India to register growth of 7-8 per cent over the next 3-5 years, depending on the global growth cycle and the absence of any large-scale weather aberrations. While this appears a decent growth rate, it is lower than India’s growth potential,” Barclays Capital said in its issue of ‘Emerging Markets Research’.
According to the financial services firm, India’s growth pattern remains skewed towards the services sector and is heavily dependent on domestic consumption, which it said, raises the possibility that the imbalance between the services and other sectors may widen even further.
The services sector contributes to around 55 per cent of the country’s Gross Domestic Product (GDP).
According to Barclays, over the next five years, infrastructure bottlenecks, normally blamed for holding the country’s growth back, are expected to ease in certain areas.
“We expect this to occur in the areas of financial, urban and human capital infrastructure, which are likely to be of greatest benefit to the services industry,” it said.
The firm, however, added that absence of large-scale improvements in basic and rural infrastructure would mean that agriculture and manufacturing sectors are likely to continue to be hampered by weak productivity growth and capacity constraints.
While Barclays has projected 7-8 per cent annual average growth for India, the Planning Commission is looking at achieving 9 per cent annual growth during the 12th Five-Year Plan (2012-17).
The economy is expected to end the current 11th Plan (2007-12) with an average annual growth of 8.1 per cent, below the original estimate of 9 per cent.
“Whilst India’s engagement with the global economy has increased, its leverage to global growth remains relatively low. Even in an environment of generally subdued global economic activity, we think India should broadly be able to remain on its own growth path if it can manage its domestic economy well,” Barclays said.
It, however, warned that rise in commodity prices could dent India’s relative competitiveness in exports.
The report termed the bottlenecks hindering the country’s economic growth as “self-inflicted”.