The double digit fallacy
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Maintaining growth at current levels is the challenge
The 12th Plan, recently approved by the National Development Council, targets a growth rate of 8 per cent for the plan period, that is 2012-13 to 2016-17. This was a lower figure than the 8.2 per cent average proposed earlier in the year and a sharp downward revision from the 9.5 per cent proposed in the approach paper to the 12th Plan. With the growth rate likely to be 5.5 per cent in 2012-13 and an optimistic 6.5 per cent in 2013-14, this would require an average growth rate of over 9 per cent in the last three years of the plan. Despite this, experts have criticised the Planning Commission for not targeting double-digit growth. Claude Smadja, a prominent observer of global growth, concluded that "with some effective reformist actions... India will bring the 'Hindu growth rate' to what should be 9 or 10 per cent a year".
To my mind, the most disturbing part of all this is not that the Planning Commission's forecast of a year ago turned out to be so wrong — it is in the elite company of the finance ministry, the Economic Advisory Council, the World Bank, the IMF and numerous international and domestic private forecasters. It is that too many influential people in India and abroad seem to believe that attaining an average growth rate of 9-10 per cent over 10 years is as easy as the ticking of policy suggestions on a power-point presentation. The history of economic growth conclusively demonstrates the falsity of this assumption. Having had the good fortune to study growth, one was in a position to oppose the adoption of unreasonably high growth targets (above 8.5 per cent) in both the 10th and the 11th Plans and to delicately warn in 2008-09 that the key issue for India was not how to raise economic growth from the existing 8-8.5 per cent to 9-10 per cent (on which analysts, businessmen, government and media seemed to be virtually unanimous), but how to sustain 8 to 8.5 per cent over the next two decades to become an upper-middle income country.