In his column today in the Indian Express, HDFC Bank MD Aditya Puri explains how India stands to gain from the global economic situation and the current trends, which will help it grow at a rate better than most other countries. He says the global economy is still limping its way to recovery from the 2009 recession. Whether the factors affecting the slow rebound are temporary or this is the new normal is a question worth lingering on, he adds. After World War II, global growth has never been able to top 3 per cent. The causes for this kind of global growth, which took place after the War, are unlikely to occur again, hence we can tag that phase as an exception.
The main causes of the current tepid rate of global growth is the decline in world population, protectionism, de-leveraging and no major productivity-enhancing revolution. According to Puri, “The period between World War II and the financial crisis was characterized by population growth, major investment, productivity gains, increases in global trade and cross-border flows of people — a debt boom.” In most of the countries at this juncture, this trend is reducing. He further says, to recognize the reality of the limping global growth is a political ‘hara-kiri’ Therefore there is a segregation of economic reality and political needs.
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While for most of the countries in the world the higher growth rate maybe difficult to achieve, India stands at an advantageous position in this case. Population growth results in greater productivity due to increase in the workforce. India is struggling to deal with the demographic dividend which can be a blessing in disguise if the new entrants in the work field are cleverly employed.
The government has already recognized the necessity to create jobs and has strategized on this fact. The Make in India, Skill India are some of the many initiatives taken by the government along with agriculture reform, growth in tax reforms and aiming on reforms through targeted manufacturing/service investment in health, tourism, education etc. These implementations have already started making the difference and will result in necessary outcomes. He says, the rationalisation of subsidies and direct cash transfers will plug leakages associated with the previous subsidy regime and make money available for merit subsidies — health, education, etc. — that can help us exploit our population dividend.”
India missed out heavily on the tech-based productivity and also couldn’t derive much from the money revolution. In furthering jobs, India is moving towards increasing manufacturing’s share. This coupled with an increase in consumption through workforce would probably impact investment and consumption which will result in GDP to cross 8 per cent.
Though India has surpassed the global financial crisis, the non-performing assets have created a huge gap which is now being tactfully handled by the banking system.
For India and Japan, US holds a lot of importance as a market – the diverse nature of these economies provide a cushioning from protectionist trade policies.
With a rough share of 59 per cent of India’s GDP, the major driver of the economic growth in India has been the household consumption spending, which has acted as a major shield against global demand shocks.
To summarize, India’s GDP growth of 7.5 percent is sustainable and good, but 8 per cent plus is a potential target, Puri concludes.