The Mid-Year Review of the Indian Economy projects a mild slowdown of the economy to 9.2 per cent GDP growth in 2007-08 from 9.4 per cent in 2006-07 and a likely further slowdown in 2008-09. The author finds the economy on the limits of its potential growth and advocates structural reforms to raise its potential growth rate.
While the economy has followed the unconventional path of services overtaking industry, there is some evidence of the resurgence of the industrial sector in the 2000s. Further liberalization of the industrial sector is necessary for boosting industrial growth with large employment generation.
It is forecast that while the current account deficit is projected to rise to 1.6 per cent of GDP in 2007-08, net capital flows will reach an unsustainable level of US$ 104 billion (8.9 per cent of GDP). This will put further pressure on the rupee and push India towards being afflicted by the 'Dutch disease'. Urgent and even unconventional measures are required to limit capital flows.
There is a possibility of the central government not reaching the fiscal deficit target of 3.3 per cent of GDP in 2007-08. Fiscal deficit including the off-budget liabilities remains very high and debt levels high by international standards and even by our own standards in the mid-1990s. The review advocates measures for reducing the stock of public debt by sale of public assets.
Rajiv Kumar is Director and Chief Executive since February 2006 of the Indian Council for Research on International Economic Relations (ICRIER). He is also a Member of the National Security Advisory Board since August 2006 and a Member, Telecom Regulatory Authority of India since January 2007.
From August 2004 to January 2006, Dr. Rajiv Kumar was Chief Economist with Confederation of Indian Industry. He had worked with ADB, Manila for over 10 years as the Principal Regional Economist for Central Asia. He was Economic Adviser in the Ministry of Finance, Government of India from 1991-95, and Senior Consultant with the Bureau of Industrial Costs and Projects, Ministry of Industry from 1989 to 1991. He was Professor at Indian Institute of Foreign Trade from 1987-89, teaching Competitive Strategy and Micro Economics. He worked as Senior Fellow with ICRIER in 1982-87.
Dr. Rajiv Kumar holds a D.Phil. in Economics (1982) from Oxford University and Ph.D. in Economics (1978) from Lucknow University. He has several books and publications to his credit and contributes regularly to newspapers and journals.
Mathew Joseph is Senior Consultant in ICRIER since February 2007.
Karan Singh is Consultant at ICRIER.
Manjeeta Singh is Research Assistant in ICRIER.
List of Tables
List of Charts
Real Sector Performance
Growth Forecasts 2007-08
Balance of Payments
Comments on the Review by the Discussants