Growth Story: Speed Bumps Ahead

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Feb 29 2008, 23:59 IST

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The Indian economy has witnessed a structural shift in its growth trajectory and has broadly been maintaining a growth rate of 9% in recent years. While this growth has facilitated higher buoyancy in revenue collections and the consequent ability to meet the FRBM (Fiscal Responsibility & Budget Management) targets, it poses certain challenges going forward in the shape of higher inflation expectations, continuing constraints in physical and social infrastructure, recent evidence of moderating consumption due to firm interest rate regime and slowing exports in the wake of stronger rupee and lower global growth.

The economic survey tabled today in the parliament shows a cautiously optimistic picture of the Indian economy.

An estimated growth at 8.7% for FY08 and anticipation of it being revised upward starts the Survey on a positive note. However, it has stated that maintaining a 9% growth remains a challenge. Consumption growth has not maintained pace with growth in incomes, indicating a rise in savings rate. Growth would largely be investment led. Implementation of these reforms would be very critical for maintaining growth.

The survey identifies continuing institutional weakness and implementation constraints at different levels of government in meeting the growing infrastructure deficit both, physical and social. Inflation remains a concern globally and it is no different for India. Although FY08 average inflation rate is estimated at 4.4%, forward looking scenario is not very comforting. With global crude oil prices ruling at all time highs and commodity prices being firm, imported inflation is likely to hurt very soon. Prices

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