Home » From bottleneck to bottleneck

From bottleneck to bottleneck

March 10, 2013

 Abstract: The Indian economy has gone through alternating periods of fast and slow growth. Reforms that drive periods of faster growth are effectively neutralised by bottlenecks at some point. The transition from 5% growth phase (1997-2003) to 9% phase (2003-2008) offers some lessons. Going into the faster growth phase, inflation was benign. Further, state finances improved as fiscal consolidation was reinforced by value-added tax in several states. Spending on public assets grew and investment/GDP rose from 25% to 38%. India’s balance of payments improved, helped by IT/ITeS exports. Global liquidity and improved prospects of long-term growth attracted strong capital inflows. Productivity increased.

However, as many of these favourable factors faded, growth began to falter, underscoring the need for sustained productivity growth. Agriculture has the potential for sustained productivity increase in India. It would also serve the added objective of addressing persistently high food inflation. After all, sustained rapid growth comes from strategically identifying, and dealing with new and emerging constraints, not just opportunistic reforms.

Keywords: growth bottleneck; public investment; balance of payments; productivity; inflation

Click here for original article