Short-run rapid economic growth possible: Rangarajan

Rangarajan, who is also president of ISI Council, claimed Indian economy's potential rate of growth still high

A rapid growth for Indian economy, in near future, is not unlikely if pending projects can be completed and complementary investments can be made in time, feels C Rangarajan, chairman, Economic Advisory Council (EAC) to the Prime Minister.

“Economic growth has in fact declined much more steeply than what is warranted by the decline in investment. This might be because projects have not been completed in time or complementary investments have not been forthcoming,” Rangarajan said, on Friday, addressing the 48th convocation of Indian Statistical Institute (ISI), in Kolkata. “In some cases, this could also be due to non-availability of critical inputs such as coal and power,” he added.

Rangarajan, who is also the president of ISI Council, claimed that Indian economy's potential rate of growth is still high.

“While the investment rate has fallen, even as late as 2011-12, the gross fixed capital formation rate, a measure of accumulation of fixed assets by the business, government and households, was around 30.6 per cent,” he said. And in such a scenario, with an incremental capital-output ratio around 4, there should have been a growth of 7-7.5 per cent.

Instead this rate stayed at 5 per cent, a decline more than warranted by a decline in investment. Pending projects and lack of complementary investments are to blame.The EAC chairman also projected that the revised growth rate is likely to be as much as one per cent higher than indicated earlier. “The economic activities moderated quite substantially in 2011-12. The overall growth rate came down to 6.2 per cent.

However, the results of the Annual Survey of Industries released last week indicate that the growth in industrial sector can be substantially higher than what was indicated earlier.

We should not, therefore, be surprised if the revised growth rate that might be announced a little later can be 1 per cent higher than indicated earlier,” he added.

Rangarajan feels that actions like constitution of Cabinet committee on investments should be beneficial to growth.

“While even the existing level of investment rate should enable us to grow at 7.5 per cent in the short run, provided we take appropriate actions to speedily complete projects, a return to higher level of savings and investment can take us back to the very high levels of growth which we had seen earlier,” Rangarajan added.