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.
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