Macro Constraints on India's Economic Growth

Macroeconomic analysis is rather hard for a diverse and vast country like India. At any rate a simple model with few equations is unlikely to be meaningful. This paper explores the possibility of putting together several models in order to shed some light on factors that limit economic growth of the Indian economy. In particular, the focus is on factors such as savings, external constraints, agricultural growth, inflation and internal finance. The paper argues that the Indian economy does not appear to be supply-constrained in an aggregative sense. Raising of public investment in case the corresponding revenue raising also is feasible is obviously desirable. Investment in agriculture should, for several reasons, be a high priority. Exports-led growth is another strong possibility for India but one should not underestimate various costs that the economy would have to bear in the short run. For several other reasons too this strategy of export-led growth is not painless. Given the risk aversion of policy makers and economic agents it is safe to predict that India will continue to move along a path characterised by a growth rate lower than what it is capable of.