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THE 8% COMPLACENCY TRAP

Growth in the nineties averaged about 6% but now we are consistently doing better at 8%. This has led to a sense of complacency and even triumphalism amongst policymakers and the media. The ‘second fastest growing economy’ appears to be waiting comfortably for China to stumble so that we can perhaps even lay claim to being the fastest growing economy in the world.

Some among us look wistfully at 10% and wonder why with our demographic dividend we do not do significantly better than 8%. Others argue that even the current 8% growth is jobless in nature and that what we need is a lower rate coupled with jobs creation. Then there are the inclusive growth mandarins in the ruling party who simply want funds allocated to relevant vote banks irrespective of whether the extra funds are the product of faster growth or higher allocation from a smaller pie.

But we should really be questioning the macroeconomic posture of our current policies . We have moderately good growth, yes, but we also have high inflation and high interest rates. We continue to have phenomenal poverty in many parts of our country with living conditions below those of sub-Saharan Africa. Our human development indicators lag our peer group, many of our children are malnourished and have no access to education, drinking water, or basic hygiene.

Therefore, those willing to settle for 8% are selling this country short. We cannot settle for anything less than the best we can do — nothing short of 10% annualised growth for the next several decades. Consider that our trillion dollar economy today, growing at a rate of 8% over 20 years to 2030, would attain a size of $5.6 trillion and the per capita income would be $4,200 (up from $1,000 now).

Good — but not good enough — because we can do better. Assuming a 10% growth rate however, the GDP would be $8 trillion and per capita $6,200 —an increase of almost 50% over the 8% scenario ! Stretch the calculation out to 2050 and the numbers are even more stark — the difference is a full 100% in both the size of the economy and in per capita GDP.

At a per capita of around $5,000 India would still be a middle income country with a very large mass of poor people. So can we afford not to grow at 10%? The usual arguments about more inclusive growth are applicable and relevant whether the number is 8 or 10, but inclusiveness and growth are not mutually exclusive — in fact they are self reinforcing. It’s not as if if we do 10%, growth will be more or less inclusive — more participative growth must be achieved regardless of the rate of growth. We do need policies that improve living standards in our poorest areas and bring more of our population into the mainstream and provide them with basic amenities and social support.

Source: Economic Times