illusion8
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By R Jagannathan
After missing the bus for two consecutive years, thanks to an accelerating slowdown, India will probably keep its tryst with a $2 trillion economy this year.
According to the Prime Ministers Economic Advisory Council (PMEAC) headed by C Rangarajan, the Indian economys GDP will hit $2,126 billion (i.e. $2.12 trillion) this year if growth rises to 6.4 percent as projected in real terms. Even if it doesnt, making the leap from $1,847 billion last year to at least $2,000 billion will be nixed only if we have a further dramatic slowdown this year. Which, even the UPAs ill-wishers will acknowledge, is unlikely in an election year, when a flood of black money usually rejuvenates the economy.
The real story, though, is the story of missed opportunities. The PMEAC had predicted an economy of $1,944 billion in 2011-12, which, with some rupee appreciation in a high-growth year, could have hit $2 trillion. But not only did the economy head south due to the policy paralysis, even in the following year (2012-13) the rupees weakness ensured that the $2 trillion target was not achieved.
Even now, if growth falters for whatever reason, and if the rupee tanks to Rs 60 because the current account deficit (CAD) soars again, we may still miss the $2 trillion mark in 2013-14.
As we said, that appears unlikely at this point, but then who thought growth in 2012-13 would hit a decades low?
None of this has prevented the PMEAC from hoping for pie in the sky. Says the Councils report: The next decade will be a crucial decade for India. If we grow at 8-9 percent per annum, we will graduate to the level of a middle-income country by 2025. It is once again a faster rate of growth which will enable us to meet many of our important socio-economic objectives.
The reality is this: raising growth from 5 percent to 8-9 percent will remain a pipedream without dramatic reforms. Especially in factor markets such as labour and land. While there is no sign of labour reforms, land reforms are heading in the direction of a further escalation in costs, which can only slow down growth and destroy jobs.
In percentage terms, CAD is expected to decline from 5.1 percent of GDP last year to 4.7 percent this year, but one wonders if this is entirely consistent with expectations of higher growth of 6.4 percent. The question is whether growth will worsen the CAD (growth requires more energy, especially oil) or improve it, unless exports revive. If CAD worsens beyond what the PMEAC estimates, and if the climate for foreign investment inflows is negative, we should expect the rupee to stay weak.
In an election year, where political uncertainty abounds, it is difficult to be sure that capital inflows will remain predictable.
We should not take the date with the $2 trillion economy for granted even in 2013-14.
http://www.firstpost.com/economy/hu...7.html?utm_source=voices&utm_medium=cat_world
After missing the bus for two consecutive years, thanks to an accelerating slowdown, India will probably keep its tryst with a $2 trillion economy this year.
According to the Prime Ministers Economic Advisory Council (PMEAC) headed by C Rangarajan, the Indian economys GDP will hit $2,126 billion (i.e. $2.12 trillion) this year if growth rises to 6.4 percent as projected in real terms. Even if it doesnt, making the leap from $1,847 billion last year to at least $2,000 billion will be nixed only if we have a further dramatic slowdown this year. Which, even the UPAs ill-wishers will acknowledge, is unlikely in an election year, when a flood of black money usually rejuvenates the economy.
The real story, though, is the story of missed opportunities. The PMEAC had predicted an economy of $1,944 billion in 2011-12, which, with some rupee appreciation in a high-growth year, could have hit $2 trillion. But not only did the economy head south due to the policy paralysis, even in the following year (2012-13) the rupees weakness ensured that the $2 trillion target was not achieved.
Even now, if growth falters for whatever reason, and if the rupee tanks to Rs 60 because the current account deficit (CAD) soars again, we may still miss the $2 trillion mark in 2013-14.
As we said, that appears unlikely at this point, but then who thought growth in 2012-13 would hit a decades low?
None of this has prevented the PMEAC from hoping for pie in the sky. Says the Councils report: The next decade will be a crucial decade for India. If we grow at 8-9 percent per annum, we will graduate to the level of a middle-income country by 2025. It is once again a faster rate of growth which will enable us to meet many of our important socio-economic objectives.
The reality is this: raising growth from 5 percent to 8-9 percent will remain a pipedream without dramatic reforms. Especially in factor markets such as labour and land. While there is no sign of labour reforms, land reforms are heading in the direction of a further escalation in costs, which can only slow down growth and destroy jobs.
In percentage terms, CAD is expected to decline from 5.1 percent of GDP last year to 4.7 percent this year, but one wonders if this is entirely consistent with expectations of higher growth of 6.4 percent. The question is whether growth will worsen the CAD (growth requires more energy, especially oil) or improve it, unless exports revive. If CAD worsens beyond what the PMEAC estimates, and if the climate for foreign investment inflows is negative, we should expect the rupee to stay weak.
In an election year, where political uncertainty abounds, it is difficult to be sure that capital inflows will remain predictable.
We should not take the date with the $2 trillion economy for granted even in 2013-14.
http://www.firstpost.com/economy/hu...7.html?utm_source=voices&utm_medium=cat_world
