Guest Lecture by Shri Montek Singh Ahluwalia

Mr Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, Government of India,  graced the occasion of the launch of “Nomura Lecture Series” at IIT Bombay on Friday, December 24, 2010 with his presence and delivered a speech on the theme “Challenges before the Indian Economy”. “Nomura Lecture Series” is an initiative taken by IIT Bombay along with Nomura, Japanese Financial Services firm, in which speakers from various domains will be invited to address the students at IIT Bombay.

In the initial part of his speech, Mr Montek Alhuwalia talked about the emergence of India on the world stage and the factors that led to the success of India in the last decade and how it can achieve 10% GDP growth in next decade. He further drew conclusions on the possibility of the favourability of these factors in next decade.

As he mentioned, the growth of an economy depends upon three main factors:

1) Availability of Capital,  

2) Availability of appropriately skilled labour and

3)Productivity of the economy to convert labour and capital into final products.

1) Availability of Capital  :  Capital is required to finance the investment plans which drives the GDP growth. In India savings rate of people has always been on the higher side and it has further moved up from 24% at the start of this decade to 36% at the end of the decade, averaging at around 31%. Achieving an average savings rate of around 36% in next few years can give us another 5% of GDP growth. 

Also with rising confidence of other countries in India, the inflow of money through FDI and FII is going to increase further which will again bridge the gap between the requirement and the availability of the capital. Increase in Foreign investment in India can further provide 2% of GDP growth.

2) Availability of Skilled Labour : As far as availability of manpower is concerned India is in a very comfortable position. With more than 50% of Indians around 25 years of age, India is considered to be having huge benefit termed as Demographic Dividend. But it is not just availability of manpower that is required but the proper matching between the skills of these people and the requirements of the industry that will yield expected results. Fortunately government understands the situation and has in past and in present working in this direction, Literacy rate in India has improved in last decade and government is spending more and more money in order to provide not just education but also the quality education. This should help in availability of more and more skilled manpower that will help India achieve further growth. 

3) Factor Productivity : It is the productivity of the economy that actually drives growth by converting the available capital and manpower into end products. With the start of economic reforms in 1990s, the productivity of India has been increasing constantly and there are many reforms whose impact is yet to be seen. Also the reforms that were initiated in past can be pushed to go deeper and overall productivity of the economy can be improved further.

Mr Ahluwalia mentioned that along with the above mentioned internal factors affecting the growth there are external factors too that can affect us, these are the changes in the outer world. With global economy under depression and recovery very bleak in major industrialized nations India can see a hit on its exports to these nations. But as India is less dependent on exports for its growth as compared to other countries the impact should be minimal. Also this negative growth can be countered by attracting more and more investments into the infrastructure sector. Though this will cause a further increase in current account deficit which is already burgeoning, but Mr Alhuwalia considers that current account deficit of upto 3% of GDP is tolerable provided we are able to finance it.  

Mr Alhuwalia believes that achieving 10% GDP growth in next decade is something that is achievable when we consider the factors that helped us achieve growth in last decade. But along with old challenges there are some new challenges too that need to be addressed, He mentioned five major new challenges which need to be given more importance in next decade:

1) Achieving Inclusive Growth

2) Eliminating Corruption, Non-transparency and Manipulation from Market

3) Tackling rising Energy needs and prices

4) Shortage of water

5) Rising urbanization

Contributed by,

Ankit Bansal,

SJMSOM Batch of 2012.