Indian economy will grow 8.4% for next 5 yrs, says Crisil

MUMBAI: India economy will maintain an 8.4% growth over the next five years, a report by ratings firm Crisil said. If some supply-side issues are addressed, it can sustain a 10% growth, it said.

Recently, rival Fitch revised upwards its forecast for India’s economic output, or GDP growth, to 8.7% for the financial year ending March 2011 from 8.5%.

Crisil has highlighted five supply-side constraints — the quantity and quality of physical infrastructure , skill shortages in its bulging population, faltering agriculture and consequent high food inflation, fiscal inflexibility to spend on health, education and physical infrastructure, and a governance deficit.

“If jobs are created and youth are equipped with the required skill-sets , India’s economic growth will accelerate,” said Crisil chief economist Dharmakirti Joshi. The prevailing skill deficit, in terms of insufficient quantity and quality of workforce, limits productivity, increases wages and raises unemployment levels, the report said. Only about 10% of India’s youth (15-29 years) receive vocational training, and the majority of engineering graduates are unemployable in the IT-ITES sector without additional training, it said.

In the 2000-2010 decade, agricultural growth became more volatile; the average slipped to 2.5% from 3.2% in the 1990s. However, the demand for food increased, pushing up food prices. Rekindling agriculture by accelerating productivity-enhancing reforms is critical for taming persistently high food inflation, it said.

“India’s main fiscal challenge is not reduction in debt and deficit ratios; this objective can be achieved by another spurt of high growth, as evidenced by the improvement in fiscal ratios during the growth upturn between 2003 and 2007. The country’s fundamental fiscal issue lies in expanding its fiscal flexibility, which would enable it to increase spending on education, health, and physical infrastructure,” added Mr Joshi.

Although its GDP growth dropped due to the global financial crisis to 6.7% in 2008-09, India’s economy emerged quite rapidly from the crisis. With its GDP likely to grow at 8.6% in 2010-11, India will be one of the fastest growing economies in the world, it said.