Question :

Read the following passage and answer the question that follows the passage:

The Indian economy is currently passing through a phase of relatively slow growth.  However, this should not cloud the fact that over the eight year period beginning 2005-06, the average annual growth rate has been 8 per cent.  Against this background, a frequently asked question is whether India has the potential to grow at a sustained growth rate of 8 to 9 per cent potential rate. 

Normally, potential growth is measured using trends and filters like the H-P.  In one sense, these are backward looking measures, since they depend on historically observed data.  In the case of measuring capacity utilization, the maximum capacity is very often taken as the maximum output achieved in the recent period.  In any case, in the case of determining the potential rate of growth of the economy one can take the maximum growth rate achieved in the recent past as the lowest estimate of the potential.  This assumption can be made, if there is reason to believe that the maximum growth rate achieved in the recent past was not a one-off event and the growth rate achieved was robust.  India achieved a growth rate of 9.5 per cent in 2005-06 followed by 9.6 per cent and 9.3 per cent in the subsequent two years.  After declining a bit in the wake of international financial crisis, growth rate went back to 9.3 per cent in 2010-11.  In many ways the growth rate achieved in the high phase period of 2005-06 to 2007-08 was robust.  The domestic savings rate during this period averaged 33.4 per cent of GDP.  Similarly, the gross capital formation rate averaged 34.2 per cent.  The current account deficit remained low with an average of 1.1 per cent of GDP.  Agricultural growth during this period averaged 5 per cent and the annual manufacturing growth rate was 11.5 per cent.  The capital flows were large but as CAD remained very low, the accretion to reserves amounted to $144 billion.  Thus on many dimensions the growth rate was robust.  It was not just fuelled by financial availability.  Certainly, the external environment provided good support.  This was the period during which the world economy was also booming.  The growth rate slowed to 6.2 per cent in 2011-12, even though the rate may be revised upwards.  It came down to 5 per cent last year and this year it is expected to be around the same level.  The savings and investment rates have come down significantly from the peak reached in 2007-08, partly due to economic and partly because of non-economic factors such as perception towards governance and policy framework.  Nevertheless, recent data indicate that in 2011-12 the gross fixed capital formation rate, a measure of the accumulation of fixed assets by business, government and households,  was around 30.6 per cent as against 32.9 per cent of GDP in 2007-08 (Table 1).  In normal conditions, keeping in view the recent trends in ICOR (the Incremental Capital Output Ratio) which is around 4, this should have given us a growth rate of 7 to 7.5 per cent but the actual rate turned out to be 6 per cent.  Economic growth has in fact declined much more steeply than what is warranted by the decline in investment.  This may be because projects have not been completed in time or complementary investments have not been forthcoming.

 

Out of the following options, find the best title for the passage?

Option 1: The booming economy

Option 2: Growth in economy

Option 3: Factors impacting economic growth

Option 4: Dip in economy

Option 5: An account of economic highs and lows

Team Careers360 23rd Jan, 2024