Are We There Yet ?

There has been perceptible hoopla over the report by investment bank Goldman Sachs.. which states that india's economy may surpass the US and be second only to china's by 2050.. its not something we didn't knew... everybody knows it all along.. given the growth rate differential (between india and developed economies..) and population we have, india will overtake western economies one day or another... it's all the question of 'when' and not 'how'.. the report says that this target maybe achieved much earlier than was previously predicted.. it quotes

India's growth acceleration since 2003 represented a structural increase rather than simply a cyclical upturn. It said productivity growth drove nearly half of overall growth and expected it to continue for some years.

you know, one needs to view these figures cautiously and not get carried away.. i feel that the increased growth rates ( 8 % instead of 6% before.. ) is more of a result of cyclical upturn (in commodities as well as world trade..) rather than any fundamental or structural reforms in india... i couldn't recall any great reforms undertaken by the UPA government... though productivity can be a factor, but i doubt if it can drive full 2% growth.. agreed that growth in US in nineties was driven by productivity gains... but we are long way off from that stage... and growth came when manufacturing had been hit hard by oil at $60+ a barrel... there has been hardly any sectoral reforms (except telecoms,airlines,insurance and possibly retail) and the entire growth engine (infrastructure.. power, shipping,public utilities,pension/financial ) hasn't seen much of improvement... neither do structural reforms (size of government continues to be bloated.. nor have we become reform friendly.. the agrarian crisis continues to affect rural india.. the bureaucratic red tape still persists..) the 2% extra growth is being generated by exports.. by IT/ITeS/Service & its side-effects (positive though...) on the other sectors (by means of increased consumption through added disposable incomes..) and the banks giving loans easily... its more of a credit driven growth rather than any fundamental difference in how economy is being run.. add to it the real state bubble that driving prices in class-A/B cities... the problem with this is that such run-away growth is that growth sometimes has its own momentum that just carries it even higher...sometimes leading to overheating.. or inflation... the important question is can we sustain these levels if we hit a downturn in world economy... (world trade & IT spending...) or if interest rate spikes... then can efficency and our economy alone generate an 8-9% growth Y-o-Y for say 5-10 year period... i doubt.. i may be skeptic... i may be wrong.... i would love to be wrong.. but then, 3 years of higher growth changes the perception... but perception is the not real thing... actions are...

~Hells Bells~

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