India can clock over 8% growth on reforms push

By agencies   |   Tuesday, 30 May 2006, 07:00 Hrs
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MUMBAI: According to a recent report by Morgan Stanley, India has the potential to accelerate to a sustained economic growth of 8 percent because of improvement in demographics, structural reforms and globalization.

Chetan Ahya, Economist, Morgan Stanley said, “India could maintain its high growth phase for a longer period than many East Asian countries though the peak growth rates may be lower than that achieved by her other East Asian counterparts. This is because its age dependency will continue to decline. In other words, the share of the working age population will continue to rise until ’35.”

The projections show that India will be the only large country still enjoying favorable demographics. Japan, Europe and the U.S. will witness a significant rise in their ageing population. The report notes that the economies of both India and China will be the dominant secular growth stories for the next two years.

Morgan Stanley expects India’s GDP to cross $2 trillion, while China’s will surpass $6 trillion. Both markets are increasingly integral to the business strategies of multinational companies and are viewed as structural drivers for global productivity and disinflation.

The two countries’ ability to achieve their long-term potential also depends on how they handle internal challenges. Both need to implement political reform to move to the next level of economic development. They need to restructure their growth models: for India, export and investments have to increase while China’s export led investments have to shift focus on consumption. Common challenges for India and China include the need to reduce poverty, and inequality and improve education.

At the same time, the two countries have pressures that are unique to them, notes the report. India’s major headwinds include the need to strengthen the infrastructure, improve public finances, reform labor laws and augment resources through higher FDI inflows and privatization.

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