Economies take time to move forward or even downwards. The larger the economy, the more time it takes to move it from its trend line. However, if the economically is under developed due to self imposed shackles and the shackles are being removed the potential for forward movement away from the trend line is huge. Most Asian Economies have demonstrated this repeatedly over the lat two decades.
The Indian Economy is fairly large, at $750 billion in market exchange rate and $3.6 trillion on ppp basis. The diagram below shows the growth of the economy over the last 50 odd years:
There are two distinct shift points in the above diagram. One in 1980 when the economy moved from 3.4% annual growth rate to 5.4% annual growth rate and the second in 1993 when it moved from 5.4% pa growth rate to 6.5% pa growth rate. The diagram indicates that 2003 may be heralding another shift. The growth this year (not in the diagram) is reinforcing such thoughts, though we will not really know for sure till we live through another 3-4 years at least. It is possible that we are shifting towards a trend growth rate of 7.5 to 8.5% pa., a trend that may go through 8-10 years.
The diagram below shows the YOY growth rates through the years depicted above. Also shown are 10 year, 15 year and 20 year CAGR for each year.
This diagram complements the earlier diagram. The long averages remain below 4% till about 1987, though the shorter average (10 years) gets past the 4% barrier by 1984. These averages do not look back after 1987and by 1996, 5% was breached. By 2006, all the 3 long-term averages have reached the 6% mark.
The same diagram is repeated below, after removing the YOY growth lines for clarity.
The diagrams above indicate that the next higher growth trajectory is indeed possible to attain within a short time frame of 3-4 years. That’s encouraging.
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