India Aims for Title of World’s Fastest-Growing Economy by 2014
India’s government set a target of becoming the world’s fastest-growing economy within four years, counting on an expanding pool of savings to help finance the nation’s development and surpass China.
India’s growth rate will accelerate to 8.2 percent in the financial year beginning April 1, a government report showed yesterday in New Delhi. A separate release today is projected to show gross domestic product advanced 6.9 percent in the fourth quarter from a year before, tempered by a contraction in agriculture stemming from a poor monsoon.
Finance Minister Pranab Mukherjee needs the anticipated pick-up in Asia’s third-largest economy to allow him to withdraw fiscal stimulus measures and reduce the nation’s debt burden. Investors will be analyzing his annual budget presentation today for commitment to fiscal discipline, as well his plans to allow higher overseas stakes in insurance, pension and sell stakes in state-run companies.
“There is a good chance India could be growing faster than China over the next five years but the government has to deliver,” said Rajeev Malik, a Singapore-based regional economist at Macquarie Group Ltd., referring to the need for deeper public infrastructure investments and asset sales to bolster productivity. “India is an attractive emerging story and capital would want to tap that.”
‘Don the Mantle’
Yesterday’s report, the annual Economic Survey prepared by officials advising Mukherjee, said “it is entirely possible for India to move into the rarified domain of double-digit growth and even attempt to don the mantle of the fastest-growing economy in the world within the next four years.”
India has averaged GDP growth of 7.1 percent over the decade through the third quarter of 2009, compared with 9.1 percent in China. The fourth-quarter GDP figures are scheduled for release at 11 a.m. in New Delhi, the same time as Mukherjee presents his budget proposal for the fiscal year beginning April 1 to parliament.
The finance ministry report yesterday said India’s $1.2 trillion economy may “breach” a 9 percent growth pace by March 2012, citing the country’s savings rates that now match the range of those in Japan, South Korea and Malaysia.
India’s savings rate is at 32.5 percent of GDP compared with 28 percent in Japan, 30 percent in South Korea and 38 percent in Malaysia, according to the report.
Higher savings by young working Indians “augurs well for the Indian economy,” the finance ministry report said. India will add 220 million people to its working-age population by 2030, according to Reserve Bank of India estimates, a lure for overseas businesses.
“Savings is the key factor that will propel India’s growth story,” Tushar Poddar, a Mumbai-based economist at Goldman Sachs Group Inc. said in a telephone interview. “Favorable demographics will boost savings and add to the growth momentum.” Poddar expects India’s savings rate to rise to 40 percent of GDP by 2015.
India would need to grow faster than China to catch up with its per-capita output. The country’s per capita GDP was $2,972 in 2008, almost half of China’s $5,962, according to the World Bank data.
The prospect of faster economic growth attracted $17.5 billion of overseas investments into stocks in 2009, resulting in the benchmark Sensitive stock index rallying most in 18 years. The strength of the economy is enticing foreign companies to set up and expand operations in India.
Harley-Davidson Inc. plans to begin sales in India this year while the world’s largest retailer, Wal-Mart Stores Inc., is expanding to tap into an economy that took off in 2004 and has since averaged 8.3 percent annual growth.
Taking advantage of the stock market rally, Prime Minister Manmohan Singh’s government plans to reduce stakes in 68 companies including NMDC Ltd., the nation’s largest iron-ore producer and Rural Electrification Corp., an Indian state-owned lender for power projects.
“It’s really execution where the real” boost can come from, Malik said of government initiatives. The public sector needs to move faster on building roads, ports and utilities and plug power outages, he said. “People are disappointed with the haphazard pace of implementation.”
Goldman Sachs in September estimated the South Asian nation will need an investment of $1.7 trillion over the next decade to build roads, utilities, railways and other infrastructure.
Mukherjee yesterday said the likelihood of a better winter- sown crops will help contain the downside risk to growth due to a drop in farm output last quarter. “The broad-based nature of the recovery creates scope for a gradual rollback” of fiscal measures,’’ he said in a report to parliament.