FE Editorial : 8% growth, 100% effort
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Achieving an 8% GDP will be an uphill task
Though the Planning Commission has done well to lower its annual GDP estimates for the 12th Plan to 8% from the 8.2% it was looking at in September and the 9% before that, as PM Manmohan Singh pointed out, even achieving this isn't going to be that easy. Given a likely 5.5% growth in FY13 and a 6.5% one in FY14, this means growth in the remaining 3 years of the Plan ending March 2017 has to be a bit over 9% per annum. Keep in mind the last time India clocked that kind of growth was in FY06 to FY08, when savings rates rose from 32.4% of GDP in FY05 to 36.8% of GDP in FY08 and investment levels to a high of 38.1% in FY08—today, they're 32.5% and 35.1%, respectively. At that point, global growth was respectable—5.3% in 2006 and 5.4% in 2007, today it is 3.3%. Apart from the fact that global growth is important from the point of view of India's exports drive, it is also critical in terms of money flows to corporate India.
Look at the composition of where this 9%-plus growth is going to come from, and the picture gets more daunting. Even if you assume agriculture grows at as much as 4% and services at around 9%, this means industry has to grow at 12% per annum for the next 3-4 years. Industry grew at 3.2% this year and 3.4% in FY12—the only time it grew in double digits in the last decade was in FY07. A 12-14% industrial growth, to put things in perspective, is what the National Manufacturing Policy (NMP) envisages industry and that is what will drive up the share of manufacturing in India's GDP to 25% by 2022, from around 15% at present. To be sure, India has a big opportunity afforded to it by rising Chinese wages as well as the appreciation of the renminbi, but translating the NMP into action requires a lot of rejigging, from fixing labour laws to setting up large NIMZs and so on. Perhaps why, while Manmohan Singh said that achieving 8% would be an ambitious target, Planning Commission deputy chairman Montek Singh Ahluwalia said 8% was the optimistic target, the base line was 6-6.5% while the policy logjam one was 5-5.5%.