Washington: India has “enormous potential” to recharge the Asian growth engine as the country remains unintegrated into global production sharing and is relatively at an early stage of its development trajectory, a top US-based economist has said.
Speaking at 2015 Asia Economic Policy Conference, Federal Reserve System Board of Governors Vice Chair Stanley Fischer said yesterday there is prospect for India to provide a new growth engine for Asian development as it has embarked on an ambitious program to improve its business environment.
“In principle, India has enormous potential to recharge the Asian growth engine. For one, India is relatively unintegrated into global production-sharing networks,” he said.
Fischer said machinery and electrical products, which feature heavily in production-sharing and which make up about half of exports in other emerging Asian economies, account for only 15 per cent of India’s exports.
He said foreign direct investment into India was about half the size of similar flows into China as a percentage of GDP, and GDP per capita, at USD 1,600 in 2014, remains considerably below emerging Asia’s average.
“While the export-led growth model that propelled growth in China and other economies in emerging Asia has matured, pushing down growth rates, India remains at a relatively early stage of its development trajectory,” Fischer said.
Further capital deepening and the potential for further productivity gains suggest that India could maintain rapid economic growth for a number of years, he said.
Noting that India is also a young country, with a relatively low dependency ratio and a growing workforce, Fischer said that by United Nations estimates, India is set to overtake China during the next decade as the world’s most populous nation.
Observing that in the 1960s and 1970s, the Indian economy grew at around three to four per cent, he said in subsequent decades the growth rate averaged close to six per cent, and in the early years of this century it rose further.
“In 2015, growth in India is expected to be 7-1/4 per cent, the fastest among large economies, and the IMF expects growth to pick up from this already rapid pace through the end of the decade,” Fischer said.
“Growth has been supported by an improved macroeconomic policy framework, including a strengthening of the framework for conducting monetary policy, and legal and regulatory reform. And the authorities have embarked on an ambitious program to improve the business environment,” he said.
Fischer also said that India needs to overcome significant roadblocks to reach its full potential.
The economy continues to suffer from a number of infrastructure bottlenecks that will be alleviated only through a pronounced increase in investment rates, he said.
“Efforts at difficult reform will have to be sustained. There is much hard work ahead if India is to come closer to fulfilling the potential that it so manifestly has,” Fischer said.