Resilient India to grow at an average of 8 pc till 2014

According to the report, India’s GDP growth will average around 8 per cent per year from 2010-2014 buoyed by the opening up of the economy in the last decade. Besides, factors such as favourable demographics, a low urbanisation rate and still rising savings and investment rates are also likely boost to the growth process. “These factors should ensure that the capital stock (machinery, physical infrastructure etc), labour and their productivity, will grow rapidly over the next decade, sustaining high real GDP growth rates,” Credit Suisse research analyst Cem Karacadag said.

Credit Suisse added “India’s annual GDP in current US dollars will triple to $4.5 trillion in 2019 from $1.2 trillion in 2009. In the same vein, India’s per capita income should triple to $3,414 in 2019 from $1,057 in 2009.” It said, one of the major reason behind the high growth rate is that the economy became more open, resulting in higher foreign direct investment and capital inflows in to the country.

Exports contributions 

Also the share of exports in the GDP almost doubled in the first decade of this century. “The share of services exports in total exports increased to 40 per cent in 2008 from 30 per cent in 2000. The ratio of exports of goods and services nearly doubled to 23 per cent in 2008 from 13 per cent in 2000,” the report noted. During 2000-2010, the ratios of savings and investment to GDP also rose 10 percentage points to 33-35 per cent, one of the highest in Asia. Rising savings level helped finance the investment boom, lifting the ratio of investment to GDP to 35 per cent in 2009 from 24 per cent in 2002. It also helped the country achieve one of the highest economic growth rates in the world, Credit Suisse said.

Real GDP growth averaged over 8 per cent from 2003-2009. Credit Suisse added that high domestic savings also allowed India to finance fiscal deficits and private investment growth without the government becoming dependent on foreign financing.

Comfortable savings rate

India’s already high savings rate could climb several more percentage points and help finance even higher levels of investment as the country’s dependency ratio is likely to fall further in the next decade going by the United Nations’ population forecasts. However, the growth prospects of India can face problems like —– weak investment climate and high fiscal deficit. “We think fiscal deficits will take a few years to bring back under control, during which government borrowing requirements will keep the cost of capital under upward pressure in India,” the report said.

Going forward the report said the government should make gradual progress on tax revenue reform and privatisation, especially in 2011-2012. That should relieve upward pressure on the cost of capital and downward pressure on India’s credit ratings over the next several years.

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