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India can grow at 8-9% for 20 years: Montek

Last updated on: May 18, 2012 14:48 IST

India can grow at 8-9% for 20 years: Montek

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Yoshita Singh in United Nations

India has the potential to grow at 8-9 per cent for the next two decades and a supportive global environment will help the country achieve this goal, Deputy Chairman of Planning Commission Montek Singh Ahluwalia has said.

Addressing a high level debate on 'State of the World Economy and Finance in 2012' at the United Nations General Assembly in United Nations on Thursday, Ahluwalia said the Indian economy grew at an average rate of 9 per cent in the five years prior to the financial crisis of 2008.

The growth slowed down to just over 7 per cent following the crisis.

"We believe India has the potential to grow at rates between 8 or 9 per cent for the next twenty years and to do so in an inclusive manner," Ahluwalia said.

"There are many challenges we have to face domestically to achieve this target but we believe we can do so," he added.

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Image: Montek Singh Ahluwalia, Deputy Chairman Planning Commission, at the debate on 'State of the World Economy and Finance in 2012' at the UN General Assembly, on May 17, 2012.
Photographs: Mohammed Jaffer/SnapsIndia

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Ahluwalia said India would be greatly helped if the global environment is supportive, and "we are willing to work with others to make it so".

While the financial crisis slowed growth in developing nations, he said, it was satisfying to note that growth rates have remained more robust than many would have expected, particularly when expansion in the developed countries has been hit hard by the financial crisis.

"This 'growth resilience' reflects the fact that large numbers of developing countries now have stronger human and institutional capacities to grow.

These economies are not delinked from industrialised countries; the links are strong, but they operate on a higher underlying growth potential," he said.

Ahluwalia said slower growth in the industrialised world will limit the export potential of developing countries.

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Image: A vendor sells vegetables to a customer next to a parked road roller on a roadside in Kolkata.
Photographs: Rupak De Chowdhuri/Reuters

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He added, however, that faster growth in developing countries as a group is creating new opportunities for trade expansion which would help offset loss of markets in the industrialised world.

"The shift in economic weight in favour of the developing world that is taking place is a natural consequence of the process of convergence and should be welcomed.

"Faster growth in the developing world is not just good for developing countries. It has positive feedback effects on the industrialised world, which could help the recovery in industrialised countries," Ahluwalia said.

Pointing out that growth in developing countries depends critically on a well functioning international financial system, he said such a system should ensure a sufficient flow of long term capital towards these countries.

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Photographs: Fayaz Kabli/Reuters

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Ahluwalia added, however, that the current state of the global financial system posed problems.            

"Excessive leverage, built up in the past due to consciously lax regulatory policies, is now sought to be corrected," he said.

This is being done at a time when a large part of the banking system of industrialised countries has been weakened by the sovereign debt problems in Europe, and the extent to which it can be recapitalised remains uncertain, he said.

Ahluwalia added, "The consequent de-leveraging could have an adverse effect on longer term capital flows.

"Excess liquidity resulting from lax monetary policy in industrialised countries, combined with deleveraging by the banks, could create an excess of short term capital even as longer term capital dries up.

"This will not be to the advantage of developing countries."

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Photographs: Reuters

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He noted that multilateral development banks can play a major role in correcting these aberrations.

While it was thought that private financial markets were efficient and for this reason the financing of productive investment in developing countries could easily be handled by the private sector, the crisis taught the world that many of the assumptions about efficient intermediation were not correct.

"We also know that in the short run the international banking and financial system will be under strain.

"This is, therefore, a time when the Multilateral Development Banks, especially the World Bank, should significantly expand their lending for infrastructure development in the developing economies," Ahluwalia said.

Investments in infrastructure would make a major contribution to strengthening the growth potential of developing countries, he added.


Image: A currency dealer displays various currencies at his roadside money changer stall.
Photographs: Athar Hussain/Reuters

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