Last Updated : 05 April 2013 at 15:30 IST
In the era of a global economic slowdown, what should India do to reclaim the 8% GDP growth rate? It forms a pertinent question and may not have easy answers.
“We grew at an average of about 8 percent in the last ten years and we can get there again. But this calls for speedy and decisive government action.” Indian PM Manmohan Singh had said recently to a gathering of industry participants.
The economic figures tell a bad story as of now.
Along with the sluggish economic growth rate, the new job generation in India has declined by 14.1 percent during the second half of financial year 2012-13 as against the corresponding period last year across India. “India's slowing economy and policy unpredictability had significantly slowed down the fresh investments and hurt job creation across the country”, concluded a study undertaken by ASSOCHAM a body of industrialists in India. This may have serious socio-political and economic ramifications.
India's savings rate has been declining at a rate which has sparked concerns about the nation's economy, according to Jagannadham Thunuguntla who delivered the 14th Malayala Manorama Budget lecture last month in Kochi. During 2007-08, India's savings rate as a percentage of National Income stood at 36.8%. In 2012-13, the figure stands at 30%.
“The spending habits of India is undergoing massive changes. Influence of western culture can be cited as a reason.” Thunuguntla said. “India used to have the highest savings rate in the world, but this has come down.” he observed. “High inflation is also a reason, but the culture influence is also a factor.” he had stressed.
The sooner India is able to get back into action in savings related issues, the better.
“India strengthening savings figures would lead to more and more of domestic investments.” noted Martin Patrick, an economist from South India.
In 2003-08 period, India witnessed a surge in savings figures and saw the economy climbing to new heights of glory. But this surge weakened when the Great Recession hit the shores in 2008.
“Back then FII investments had been the key driver of inflows and inflation was very low. This scenario has changed; as economic crisis worsened, people began to invest more in gold and real estate.” said Vijayakumar, Chief Investment Strategist at Geojit BNP Paribas.
In other words, their idea of savings changed. The word savings expanded its meaning and scope. Bank savings just became one of the means to save. That took away great deal of money from the savings accounts.
If the problems in Europe subside and US regains its strength, India could well see returning to 8% growth in another three years. A dip in commodity prices, especially crude oil prices and gold would address the issue of widening Current Account Deficit and would facilitate a lending rate cut by the RBI.
If the US economy strengthens further, measures of aggressive monetary easing would be phased out. That would free funds invested in commodities like gold and crude oil causing their eventual decline.
“If RBI cuts rates aggressively, India would see return to 8% growth in another three years time.” Vijayakumar said.
The era of policy paralysis is long past, he said.
