India GDP growth? Sustainable?

Growth rate of any economy gets on to an unsustainable state when it gets constrained by short-supply of critical inputs like:

1) When investments demanded by that growth is less than savings.

2) Shortage of labor to support that growth.

3) Adequate infrastructure to handle that growth.

1)Economy Savings and Investments:The average saving rate in India was 10 per cent in the 1950s, which rose to 17.5 per cent in the 1970s and further to 23.4 per cent in the 1990s. The saving rate was 32.4 per cent in 2005-06.
Gross domestic investment rates increased from 22.9 per cent of GDP in 2001-02 to 33.8 per cent in 2005-06. Pls. note that 95% of the investments were supported by domestic savings.
One would conclude that this rate of investment (~35% of GDP) would easily support ~10% GDP growth in a non-inflationary sustainable mode. But, WAIT…

2)Labor shortages:If we look at the composition of our GDP, about 50% of this comes from services with industrial and agriculture contributing ~22% each.You clearly could see the labor shortage in specific services sectors that could scuttle the above growth estimates.

3)Infrastructure:This is the most serious impediment that could dampen the above growth estimates as under-capacity in the key infrastructural areas like Roads, Ports and Power has been knocking out the actual growth you could have versus the growth we’re limited with owing to the bottlenecks.

A serious commitment from govt. in incentivizing the infrastructure investments to attract private players to participate in enhancing these 3 infrastructural areas would definitely debottleneck theese areas and reduce the disparity that currently exists and will be more pronounced in next 2-3 yrs.

Quantification models do exist in the market place that would quantify the discount that has to be applied to growth estimates based on the mismatch/disparity between current infrastructural capacity and growth-demand.
conclusion:One would be able to (atleast in theory) come up with a reasonable non-inflationary and sustainable growth rate for our economy, with the adequate discounting applied to the estimate based on gap in the supply of critical inputs needed for that level of growth.

NOW…should this GDP come from exports-driven growth or domestic-consumption-driven one is again subject to debate

.…..CHINA is trying to get away from being an overly-export-driven GDP economy to a moderate level by bumping up the consumption rates and bring down huge (40%) savings rates.

…..US, on the other hand is fighting to bump-up it’s domestic savings (It only manged to save 13% of it’s national income last year versus 50% with china). And that’s just looking at national averages that include saving by consumers, businesses, and governments. The contrast is even starker at the household level — a personal saving rate in China of about 30% of household income, compared with a U.S. rate that dipped into negative territory last year (–0.4% of after-tax household income).

We’re luckily in the middle grounds with a reasonably good balance of domestic savings and export-driven share. It has to be mainatained that way to avoid risk of negative
GDP growths in case of sudden drop in exports owing to emerging protectionism in various countries or overly-consumeristic public driving down the savings to US-levels.