External aid needed to sustain growth: Govt

By agencies   |   Tuesday, 21 June 2005, 07:00 Hrs
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NEW DELHI: The government on Tuesday said it required investment to the tune of 24-25 percent of GDP each year to sustain economic growth rate at 6 percent and said this was possible through external borrowings as domestic savings rate already stood at 23 percent.

"As things stand at present, a sustained growth rate of 6 percent per annum would require investment to be of the order of 24-25 percent of GDP each year," Minister of State for Planning M V Rajasekharan said at an international seminar organized by the Foundation of Indian Industry and Economists (FIIE).

On the linkage between economic growth rate and external financing, he said: "If domestic savings is below this level of investment, the difference has to be met through external resources".

Since the national savings rate is about 23 percent of GDP, he said: "This implies an inflow requirement of external resources of about 1-2 percent of GDP annually".

He said such magnitude of external resources inflow could be managed without too much difficulty through external borrowings, without taking recourse to foreign investment.

Rajasekharan, however, said the question needs to be asked whether we can be satisfied with rates of growth in the neighborhood of 6 percent.

He remained that one implication of such a growth rate is that it would take the economy 15 years to double per capita real income from its existing low level.

This level of growth rate is even unacceptable at the backdrop of existing backlog of unemployment, he added.

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