CHENNAI: Striking a note of optimism on the continuance of the cycle of growth and savings for some years, Chief Economic Adviser to Union Ministry of Finance Ashok Lahiri, said on Thursday that the rise in per capita income together with well-targeted anti-poverty programmes should allow reduction in poverty ratio by five percentage points in 2007 and 15 percentage points in 2012.

Speaking on "Current conjunctures of the Indian Economy" at a seminar held by the Madras School of Economics (MSE), he said, "reforms have to continue at a steady pace, as the future has never looked as promising as it does now. But there are miles to go before we can leave the economy on automatic pilot."

Renowned economists had predicted that the per capita income would increase from $468 in 2000 to $1149 in 2015 and $17,366 in 2050.

This was still lower than the current per capita income in G6 of $18,677 in Italy and $34,797 in United States but the trend marked a very large improvement, he pointed out.

The household savings would also increase with accelerating income growth and decline in `dependency ratio', he said, adding that demographic dividend would also pay off in terms of a larger and younger labour force gainfully employed in production.

Growth `sustainable'

Dr. Lahiri emphasised that growth, which had been satisfactory so far given the modest investment-GDP ratio, was sustainable.

The assessment was based on the likely increase of the investment rate with rising domestic savings rate reinforcing the high growth cycle. The continued `enabling policy' environment to encourage foreign direct investment flows and technology transfers would buttress this, he said.

He also stressed the need for resorting to facilitation measures such as improving physical, social and institutional infrastructure including fiscal consolidation and judicial reform and sectoral reforms to ensure sustained growth.

Challenges

Among the challenges facing the country was the supply side constraints, as indicated by the agriculture commodity-specific inflation, Dr. Lahiri said and called for productivity enhancement measures such as integration of technology, credit, investment and post-harvest value addition, within an incentive compatible system.

In the industrial sector, mining and electricity continued to lag behind the overall growth rate of the economy, he said. Lack of technological breakthroughs including improved variety of seeds continued to be a major problem, more particularly on the pulses front, he added.

Services grew at 10.7 per cent in the first half of 2006-2007 with telecommunications being a major driver of growth.

"But there is a need to understand and exploit the complementaries between growth of services with the production sectors," besides harnessing them for the benefit of rural and agricultural sectors, he said.

Labour participation

He also highlighted the importance of measures to increase the labour force participation rate. "Currently only 61 per cent of persons in the age group 15-65 years are actively seeking jobs as against 82 per cent for China.

Employing them gainfully could increase GDP dramatically." Empowering the people would be a major agenda item for growth, he added.

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