There is a typical profile where savings and demographic factors combine to produce a big step-up in average growth. High exports and rapid industrialization are accompanied by other secondary, but common factors such as: low overall indebtedness and maintenance of either a fixed or semi fixed exchange rate, typically to the dollar. All these factors are grouped into the pedagogic chart below. Currently India is still on the left hand side.
Click on chart to enlarge, courtesy of UBS.
Well, in a short summary analysts at UBS believe:
Just two factors tell us India could be waking up to an extended period of high trend growth, we believe, of 8-9%pa: high savings and rising industrialisation. Government intervention matters, but ultimately more intervention just reduces economic efficiency and thereby the step-up in real growth. The basic question is: will real growth centre around 10% pa or sink nearer 5%? The difference between these two boundary rates is the difference between doubling or more than trebling of per capita GDP over a 10-15yr timeframe. As per capita GDP rises from c.$3k today, within the next 1-2years the intensity of spending on investment goods, materials & energy rises almost vertically; then on approach to $10k per head ten years hence consumption spending follows suit. Successive industrialising nations reach these points earlier and India’s no exception. Finally, on structure, whether India continues to run current account deficits or swings to surplus ought not to matter for growth per se. But a deficit path makes growth more volatile because it is vulnerable to: (i) twin external shocks (trade & capital) and (ii) the 'grow-inflate-devalue' pattern due to overemphasis on pro-growth demand stimulation.
I am already knocking at the gates of paradise ...
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