India needs 'quantum step' in investment

Senior Bank Governor sends out Investment Warning

Posted 4th March 2011


India needs 'quantum step' in investment

India’s central bank governor has warned that the country needs a "quantum step" in investment to achieve the ambitious double-digit economic growth rate forecast by Manmohan Singh, the Indian prime minister.

The warning from Duvvuri Subbarao flies in the face of the growing belief in India and overseas that the country can outpace China by moving from its current 8.5 per cent growth to 10 per cent growth over the next three to five years.   “India needs to raise its investment by a quantum step if it is to realise its aspiration of a double-digit growth,” Mr Subbarao said in an online forum hosted by the Financial Times.

His comments also highlight India’s need for greater foreign direct investment at a time when short-term capital inflows to emerging markets are rising quickly. “We certainly need to augment our domestic resources with foreign savings . . . We have a preference for long-term funds over short-term funds, for equity over debt, and for FDI over portfolio flows.”

Mr Singh has forecast that India will reach 10 per cent economic growth in the medium term, placing it on a par with Chinese levels of expansion. His senior officials argue that double-digit growth can be achieved without additional major structural reforms, such as those encouraging higher levels of foreign investment, or simply by improved performance in the lagging agricultural sector.

Leading investment banks like Japan’s Nomura and US-based JPMorgan also predict that India's domestic consumption boom can help propel its economic growth higher than China's in coming years.

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