The Hindu Business Line : 8% growth sustainable: Economists

At a glance
Rapid expansion in consumer credit, especially of mortgage credit.
Corporates have been using the ECB route for asset creation.

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New Delhi Jan. 28 The country's corporate sector seems to have shed its inhibition to investments and is taking up large projects, including infrastructure development, in a big way.

While there is a perceptible activity on the ground, economists in the Prime Minister's Economic Advisory Council have confirmed that there has been a remarkable turnaround in investments by the private corporate sector in the last few years, giving indications that the 8 per cent plus growth of the country's economy is sustainable.

Capital formation

Macro-economic data analysis by these economists shows that the capital formation in the private sector as a share in gross domestic capital formation has moved from a figure of -18 per cent in 2000-01 to an equally positive growth of 25-30 per cent in 2003-04. Significantly, capital formation in the public sector too has kept pace, rising from a negative four per cent in 2000-01 to a positive 11.8 per cent in 2003-04, giving further hope for a sustained growth in the economy.

Growth data

Supporting data analysed has revealed that the investments in real terms have been growing at 15-16 per cent between 2002 and 2005 — years for which actual data is available — and estimates show similar rates of growth in 2005-06 and 2006-07.

In economic parlance, the contribution of investment (gross domestic capital formation) to GDP growth has been rising since 2000-01, going up from a negative 1.17 per cent to a positive 4.20 per cent in 2004-05.

Credit offtake

Even in terms of credit offtake, while there has been a rapid expansion in consumer credit, especially of mortgage credit, offtake by industry and infrastructure is also significantly large. In addition, corporates have been using the external commercial borrowings (ECB) route extensively to finance asset creation — both for expanding manufacturing capacity as well as creation of infrastructure assets.

Electricity sector

Expectation of sustained high growth comes from another area. Economists say that in the past couple of years more electricity generating capacity has been put in place and the overall performance of this sector has been resulting in power sector output, for the first time in many years, averaging over seven per cent in April-November 2006 compared to five per cent or less over the previous six years.

Electricity sector reforms too are progressing.

Airports, ports

Progress in highway construction, though delayed, is on while the private sector has been successfully involved in at least two major airport modernisation programmes, despite strong political opposition. Two more private sector developed airports at Hyderabad and near Bangalore are nearing completion.

The private sector is also getting involved in the development of ocean ports and more such port development projects are likely to be taken up in the coming months.

According to economists, "over the past couple of years, there has been evidence of a surge in confidence amongst Indian private businesses with respect to managing large investments, including that relating to infrastructure."

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