• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Amit Mitra

Mr Ashok Soota, President, CII, with Mr Rahul Bajaj, Chairman and Managing Director, Bajaj Auto, at a conference on `Competing in turbulent times' in Mumbai on Friday.

MUMBAI, April 11

CAN the country's annual growth rate crawl up from 5.6 per cent in 2002-03 to the targeted 8 per cent? The broad sentiment in Indian industry is that it is a "realisable target", but it significantly hinges on how well domestic growth is balanced with exports through increase in productivity and per capita income.

While industry is unanimous on the need for the country to nudge an annual rate of 8 per cent and stabilise at over 10 per cent for the next few years, analysts feel that the infrastructure and manufacturing sectors hold the key to achieving the 8 per cent and above growth target.

Why is it imperative for the country to achieve a sustainable growth rate of over 8 per cent? The primary reason lies next door — China.

With a population of 1.25 billion, China had a compounded annual growth rate of about 10 per cent in the last decade. Further, while India had a GDP of $450 billion in 2002, China's was close to $1,000 billion — more than double that of India. Thus, if India's growth rate remains at the current level, China's GDP will be six times that of India by 2010.

"China achieved growth through hard reform measures and improved efficiency, apart from structural reforms in taxes and duties, agriculture, market system and labour laws. The core of the reform process was achieving autonomy for the State-owned enterprises. The growth of the Chinese economy and stagnation of the Indian economy will prove detrimental to our industry," a representative of the Confederation of Indian Industry (CII) says.

Balancing domestic growth with exports is considered by the analysts as the best instrument to shore up India's growth rate. Contrary to the belief that exports constituted the key factor for stimulating China's growth, a CII-McKinsey report showed that increase in domestic market, along with rise in exports, made it possible for China to achieve a rate of about 10 per cent.

The CII believes that for an economy to achieve 8-10 per cent growth, its manufacturing and primary sectors have to perk up. Indeed, the manufacturing sector accounts for 25 to 35 per cent of the GDPs of the South-East Asian and Chinese economies, while in India its share is a measly 16 per cent of the GDP.

Similarly, China's manufactured export growth was 16.3 per cent as against 8.7 per cent in India.

"While the Government must do its bit in boosting the manufacturing sector by improving infrastructure, rationalising labour laws and boosting exports through the creation of SEZs, the industry should do its bit by increasing productivity, infusing new technologies through R&D and achieving better cost management and competitive pricing," a CII note points out.

The analysts indicate that only a marginal growth is likely in the agriculture and services sector, which means that it is essential for the industry to grow at a much faster pace if India were to meet the 8-10 per cent target.

Assuming that the agriculture and services sectors grew at 1.5 per cent and 8 per cent per year respectively, the industrial growth will have to increase from 6.5 per cent to 13 per cent in the next two years and then stabilise at at least 11 per cent per year. In dollar terms, value added in industry will have to rise from $139 billion at present to $302 billion during the next 10 years.

"But the worry is that even with this (industrial) growth rate of 11 per cent, China, Korea, Malaysia and Thailand's share of industrial sector output will be higher than that of India in 2010. Therefore, 11 per cent or more industrial growth is vital for the survival of the Indian industry," the CII says.

Article E-Mail :: Comment :: Syndication

Stories in this Section
8 per cent growth target realisable, says India Inc — `Manufacturing, core sectors hold key'

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line