At the end of two decades of economic reforms, coinciding with the end of the Eleventh Plan (2007-12), the economy is still some distance away from the desired 9 per cent annual GDP growth. On annual average basis, it is a milestone that remains to be reached. It was 5.7 per cent during the 1990s (almost same as that of 5.6 per cent during the 1980s), 7.8 per cent during the Tenth Plan (2002-07) and is expected to be 8.2 per cent during the Eleventh Plan.

It was only during a short three-year spell of 2005-08 that GDP grew at an average annual rate of 9.4 per cent. But taking the long-term period beginning the launch of economic reform in 1991-92, the average annual growth may be observed to have been just around 7 per cent, which was the case during the initial years of economic reform. How do we narrate our growth story in the backdrop of reform and liberalisation?

UPS AND DOWNS

First, economic reform and a liberal business environment have helped to spur growth. GDP growth had jumped from 5.6 per cent during the 1980s to 6.8 per cent during the first half of 1990s. Again, spurred by the effect of cumulative measures of liberalisation, there was a massive surge in growth in 2003-08, when a peak growth rate of 9.6 per cent was achieved. It was then that we were confident of achieving double-digit growth. But ever since the launch of reforms, economy has been alternating between growth and crisis.

Second, external sector liberalisation has helped in gainful globalisation of our economy. It strengthened the external economy, that was historically a weak link. In recent years, there has been an upsurge in inflow of foreign capital, and the economy has now the comfort of sizeable foreign exchange reserves. Also, largely riding on the back of price and diversification effects, exports are growing at a galloping pace. It is indeed remarkable that exports are growing in spite of the global economic slowdown.

At the same time, however, the domestic economy is more exposed to external shocks. In the past two decades, the economy has witnessed two periods of upsurge in growth, each followed by a period of downturn, which was due almost entirely to the adverse global economic environment. It is largely on account of shifting external economic conditions that our economy has not been able to sustain the growth momentum, and reap the full benefits of economic reform.

DOMESTIC ECONOMY CONCERNS

It is imperative that we evolve a strategy that would give our domestic economy some immunity from external shocks. A globalised economy cannot be given total immunity, but it is always possible to focus on greater resilience, if the domestic economy is large and full of potential.

Fortunately, and unlike in many economies, we also have a strong domestic demand base that is growing steadily. Recently, the National Sample Survey Organisation (NSSO) released its household consumer expenditure survey for 2009-10, indicating rising living standards in rural as well as urban areas. And this is happening amidst rising inflation.

Taking the five-year period from 2004-05 to 2009-10, the survey (60{+t}{+h} round) shows that monthly private consumer expenditure (MPCE) in rural areas had increased to Rs. 953.05 in 2009-10, an increase of 64.6 per cent over 2004-05 against 57.64 per cent rise in consumer prices. Similarly, the MPCE for urban areas had increased by 68 per cent to Rs 1856.01 against 49.9 per cent increase in consumer prices. With the domestic market thus growing steadily and export sector growing at fast rate, the more relevant question is what is holding the economy from achieving 9 per cent growth?

Given the trend in income and consumption growth, why is the domestic economy unable to achieve high growth on a sustained basis? Going forward, this question should be guiding our plan and policy programmes in the years to come.

We need to address the factors that are holding us from realising the potential for sustained high growth.

ADDRESSING BOTTLENECKS

A major problem confronting the economy at this stage is our inability to augment the supply side in real economy sectors such as agriculture and industry, including infrastructure. Augmentation of the supply-side can strengthen the demand side by generating employment opportunities and consequent income. The priority for the Twelfth Plan (2012-2017) should, accordingly, be to augment investments in agriculture and infrastructure.

Special attention is also required to facilitate resurgence in the manufacturing sector that continues to remain in a semi-developed stage. The government has announced a New Manufacturing Policy (NMP) with the objective of increasing the share of manufacturing in GDP to 25 per cent by 2025, and is a welcome initiative. But the imperatives for a substantial increase in industrial investments and necessary growth in infrastructural output are yet to become part of our approach to development.

The economy is once again weighed down by high costs. This is more a result of delays in project implementation, especially in the case of larger projects, than rising interest rates. Industrial investments are caught in the cross-currents of issues such as environment and ecology, laws and regulations relating to extraction and use of natural resources, land availability, interest of indigenous people and abatement of corruption. Domestically, it is a turbulent business environment that we in industry are faced with. In such a situation one is bound to catch cold if exposed to cold winds from outside. But given the favourable environment at home, Indian industry can take the economy on the road to sustained high double-digit growth. Hence the imperative is to remove barriers to industrial investments and growth.

(The author is President, JK Organisation. The views are personal. blfeedback@thehindu.co.in )

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