The record of India’s economic growth rate in the period from 1980-1981 to 2006-2007 has been much higher than in the previous three decades since her independence in 1947.
This growth acceleration has been projected to continue over the medium-term by a number of observers, including Dani Rodrik and Arvind Subramanian.
Last year, Peter Drysdale argued (in the Fifth Crawford Lecture series, jointly organized by the National Council of Applied Economic Research and the Australia India Council) that continued growth on this scale will elevate India to the status of an important global player, and that India should be included as a member in the East Asia Summit.
Last week, Nomura Financial Advisory and Securities (India) increased its forecast of the Indian growth rate to 6.3 per cent from their earlier prediction of 5.3 per cent for 2010, based on a higher than expected 5.8 per cent year-to-year growth rate for the first quarter of 2009.
Even during the global economic crisis, India is one of only a few countries with positive growth: including Australia with a 0.4 per cent growth rate. However, the sources of growth are not the same for Australia and India. In the former’s case, the main source is exports; in the latter’s case, it is not.
Though India’s exports registered an impressive 30 per cent growth rate in the first six months of the financial year 2008-09, it started declining in double digit figures from the last quarter of 2008 until now.
India’s growth is easily seen as services sector-led growth. After the IT boom, it is the growth of the retail sector in India that can be seen as the next driver of the economy. Retail is a huge sector, and far away from the eyes of the corporate sector and also from government intervention: just like IT.
The growth of organised retail is now associated with complementary areas such as real estate, storage and decongestion. More than 50 per cent of income is generated in the services sector and retailing is an important part of that. Though international trade contributes 16 per cent of GDP, domestic trade is one of the fastest growing segments of the services sector, and has contributed about 13 per cent of GDP over the last five years.
More than 80 per cent of income generated through domestic trade comes from the unorganised retail sector and almost 65 per cent of the services sector income is generated in the informal retail sector.
The following 10-year moving average figure of growth in household real consumption across selected countries throws light on the importance of the retail sector for growth in India. The youth in India and their aspirations have been significant contributing factors in retail growth.
This interesting structural change provides numerous opportunities to invest in one of the world’s more dynamic economies, and one with a bright future.
Now, it is imperative to make the ‘India Miracle’ happen. With the new government stronger than before, it needs to implement reforms in the area of retail trade to attract both domestic and foreign investment. Granting industry status to retail trade, improving transport facilities between states, and removing inflexible labour laws would be a very good start.
If we take a long historical view of human beings’ history and see the dynamic economic growth and transformation in Asia over the past decades in that light, starting with Japan, then followed by the four NIEs, the other East Asia tigers, China and India now, it is likely that over the next few decades we will see an Asian economic restoration. Asia is finally catching up with Europe and North America, following the latter’s remarkable economic advances since the industry revolution.
Let’s hope that Asians will consolidate their economic progress over the past decades and continue to advance their economic fairs in the coming decades.
While in the past exports from Asia to other regions have played an important role in assisting Asia’s transformation, the future is likely to see more reliance on intra-regional trade and domestic absorption, as the size of the Asian economies continue to grow. This is particularly so, given that the US will need to live within its means, that means to save more and consume less as a proportion of income.
Kalirajan’s observation of the structural change in India’s economy is especially interesting in light of this.
A closer economic integration of Asian economies especially those more advanced and those more dynamic ones, will provide further scope for growth and benefit not only Asian economies, but also economies in other regions. Intellectual thinking and policy frameworks within the region should more ahead and provide guidance to Asia’s economic transformation at such a scale. Institutional development might be beneficial to the process of transformation.