Despite looming global economic crisis, India seems undeterred in its goal to emerge as an economic force to be reckoned with. New Delhi gave its strongest indication by declaring an ambitious five-year plan that seeks a staggering economic growth target of 9% per annum.
?We want to achieve a growth rate of nine percent per annum (starting in 2012),” Prime Minister Manmohan Singh said as he rolled out the key elements of the Congress government?s economic plan for the next quintet of fiscal years till 2017.
The announcement reiterated the keen reassurances presented by the world?s largest democracy in the face of a dual debt crisis on the Western economic front that threatens the progress of emerging economies.
In fact, the target is a setback from the current government?s long-yearned aspiration of double-digit growth. Manmohan Singh administration proposed a relatively modest 9.5% rate to the commission for its economic outlook of the country. However, both intended targets had to be scrapped due to the troubling prospects of the international economy, as well as the more pressing inflationary pressures that impede the domestic economy.
India?s economic growth has been uphill ever since it embraced liberalization in 1991, introducing a series of economic reforms under then Finance Minister Manmohan Singh that have allowed the once isolated economy to benefit from booming international trade.
The world?s second-largest fastest growing economy has been expanding at a rate of 8.6% since 2006. Neighboring China’s economy expanded rapidly with a striking annual growth rate of 9.8% within the same period.
However, the latest announcement comes as a blatant indicator of India?s unwavering determination to fulfill a World Bank forecast put forth earlier this year and beat China in the race to achieve the highest rate of economic growth in the near future, if not by 2012.
India?s ambitious growth target is subject to several challenges that the economy continues to face, some of which arise from the sprawling growth it steadfastly maintains. ?The commission has pointed out that given the uncertainties in the global economy, and the challenges in the domestic economy, even a 9% target is feasible only if we can take some difficult decisions,? Indian PM conceded during a press conference.
Skeptics have often expressed concern over what they see as ?out-of-control? economic growth, citing imbalances and anomalies that have emerged within the domestic economy. Among them is India?s jittery monetary policy, which has seen the central bank hike interest rates 11 times in the past 18 months.
Rapid inflation is a further indicator of a latent wave of economic instability that might jeopardize India?s illustrious ambitions. Wholesale prices, which are the primary measure of inflation of the Asian economy, shot up as high as 9.22% in July this year, while food prices spiraled upward at a rate of 9.9% in August, as foretold by Kaushik Basu, chief economic adviser, that inflation could reach ?around 10% in August?.
While pressure intensifies on economic policymakers, analysts point out that a high economic growth rate would only correspond to even greater inflation. Government planning commission insists it is a fact has not been overlooked.
?We?re expecting 5 percent inflation in the next plan,? Montek Singh Ahluwalia, deputy chairman of India?s planning commission, said at a press conference in New Delhi. ?We have worked with this figure and don?t forget that higher growth will lead to higher inflation.? Nevertheless, skeptics remain cautious if the projected figure could only be an underestimation.
Another burning controversy that plagues India?s economic outlook is the staggering rut of corruption scandals that have literally arrested the nation?s positive pursuit of economic reforms.
Corruption, which is projected to cost India an alarming portion of its GDP, has come under great public fire in recent times. An aggressive campaign led by activist Anna Hazare has brought close scrutiny into a recent anti-corruption bill, inciting calls for renewed efforts to combat corruption and economic mismanagement. Manmohan Singh-led government has stoked tremendous public ire in a nation where more than 76% of its 1.2 billion population live on less than $2 a day.
In fact, the central aim of the planning commission, ever since its establishment in 1951, was to eliminate the alarming divide and alleviate the suffering of a third of the world?s poor that India is home to.
However, the effectiveness of these Soviet-inspired five-year plans has often been called into question, as it is professed that central economic planning breeds inefficiency and hampers effective industrial growth. This presents a striking paradox for India which has found fortune in an increasingly market-oriented economic model. Arch-rival China, on the other hand, thrives on a mix state-controlled capitalist economic policies.
India plans to double its infrastructural investment to about $1 trillion in its 11th Five Year Plan which was announced by the Planning Commission in January this year. The current administration is keen on achieving its ambitious growth plans set forth by the commission for the Indian economy.
The plan to further infrastructural development, which is underscored as a key proponent of economic expansion furthermore highlights India?s aim to topple China as a global investment arena.
Such a move may seem opportune as investors seek to redirect their funds from the distraught economies of the West to more attractive investment destinations, particularly as key indicators suggest declining fervor in Chinese economic growth.
Among the most significant outcomes of the renewed focus on bolstering foreign direct investment is the fate of India?s booming IT industry, which provides the greatest potential for the Indian economy to overcome its looming current account deficit, as well as strategically establish a robust tertiary sector that could possibly propel India ahead of manufacturing-based Tiger economies.
Sources: Businessweek, Yahoo!