Bloomberg News

India Sets 9% Economic Growth Target for Five Years to 2017

August 20, 2011

(Updates with Ahluwalia comments from seventh paragraph.)

Aug. 20 (Bloomberg) -- India aims to accelerate the pace of economic growth to 9 percent in the five years starting April 2012 to help cut poverty, Prime Minister Manmohan Singh said.

The government had asked the Planning Commission to consider a goal of as high as 9.5 percent, Singh said in New Delhi in an address to cabinet colleagues and members of the Soviet-style government organization that sets five-year investment targets. The plan body set the target, he said in comments sent by e-mail by his office.

“The commission has pointed out that given the uncertainties in the global economy, and the challenges in the domestic economy, even a 9 percent target is feasible only if we can take some difficult decisions,” Singh said.

The Reserve Bank of India says a pace of growth that’s quicker than 8 percent can fan inflation, underscoring the dilemma policy makers face in raising living standards in Asia’s third-biggest economy, where the World Bank estimates 76 percent of the 1.2 billion people live on less than $2 a day. India’s economy has expanded at an average 8.6 percent since 2006, versus China’s 9.8 percent, data compiled by Bloomberg show.

Singh said the government is aiming for a 4 percent growth in agriculture in the five years as inflationary pressures “could arise if high levels of growth are attempted” without increasing domestic production. The central bank has called for higher investment in farming and factories to increase supplies.

Rate Increases

The Reserve Bank has increased its benchmark repurchase rate 11 times starting March 2010, by a total 3.25 percentage points to slow growth and tame the fastest price gains among the so-called BRICS nations.

“We’re expecting 5 percent inflation in the next plan,” Montek Singh Ahluwalia, deputy chairman of India’s planning commission, said at a press conference in New Delhi today. “We have worked with this figure and don’t forget higher growth will lead to higher inflation.”

Wholesale prices, the key gauge of inflation in India, rose 9.22 percent in July from a year earlier, and the rate may be “around 10 percent in August,” Kaushik Basu, the chief economic adviser in the finance ministry, said Aug. 16. The wholesale-price index for food articles has climbed in the past year at an average of 11.89 percent.

Benchmark inflation, measured by consumer prices, is 6.9 percent in Brazil, 9 percent in Russia, 6.5 percent in China and 5 percent in South Africa.

Singh’s government plans to invest $1 trillion in ports, roads and power plants in the five years to March 2017.

‘Energy Needs’

India’s ability to achieve 9 percent growth “will depend on meeting our energy needs,” Ahluwalia said. “It will mean boosting investments in the power sector.”

The availability of power is a key constraint to growth in India. The theft of electricity lowers the annual income of Indian distribution companies by $16 billion and cuts output by 1.2 percent in the $1.7 trillion economy, according to the planning commission and data compiled by Bloomberg.

--With assistance by Ketaki Gokhale in Mumbai. Editors: Cherian Thomas, Sam Nagarajan, Stephen Kirkland

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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