food for thought ( 25 Jan 07)

The Hindu businesss line dated 25 jan 07

Intersting revelations:



India's influence on the world economy will be bigger and quicker than what was implied earlier, Goldman Sachs has reported.
Arguing that the country's high growth rate since 2003 represents a structural increase (rather than simply a cyclical upturn), the financial powerhouse has projected India's "potential or sustainable growth rate" at about 8 per cent until 2020.
"The recent growth spurt was achieved primarily through a surge in productivity, which we believe can be sustained. India is well-positioned to reap the benefits of favourable demographics, including an `urbanisation bonus', and a further rise in capital accumulation, in part from an upsurge in foreign direct investment," the report has mentioned.

The risk to the country's growth stems from political issues (including a rise in protectionism), supply-side constraints (including business climate, education and labour market reforms), and environmental degradation.

Productivity growth, which is driving the increase, is expected to continue over the medium term.

A turnaround in manufacturing productivity has been central to the productivity growth, it is contended

.

" These reports should not however make us complacent.Instead it should reinforce
our basic thrust on infrastructure developement and take measures to bridge the growing regional disparities."

The private sector was the principal driver of this turnaround as it improved efficiency in the face of increased competition. The underlying reasons are: increased openness to trade, investment in information and communication technology, and greater financial deepening. These factors still have some distance to run, Goldman Sachs has opined.

Here are some highlights from the report:

* India has 10 of the 30 fastest-growing urban areas in the world. Based on current trends, a massive 700 million people (roughly equivalent to the current population of Europe) will move to cities by 2050. This will have significant implications for demand for urban infrastructure, real estate, and services.

* Policies to enhance financial sector growth, openness to trade, rural-urban migration, capital formation, education, and environment — together labelled the `FORCE' factors — will be critical to sustaining growth.

* Assuming that policies to open up the financial sector remain on track, including the entry of foreign banks starting from 2009, there will be more "financial deepening". This will contribute to increases in productivity in the medium term.

* Today, India is the fastest growing market for mobile phones, with average growth rates of over 80 per cent every year since 2000.

* The success of India's elite students from IITs and IIMs masks the generally abysmal state of higher education in India. Higher education remains heavily regulated, with little to encourage private-sector participation or innovation.