- output ratio ( icor ) of a shade below 4. provisional estimates from the see mohanty, deepak ( 2011 ), “ indian economy : progress and prospects ”, speech delivered at the harvard business school, boston on september 27. for a detailed discussion see mohan, rakesh ( 2008 ), “ the growth record of the indian economy, 1950 – 2008 : a story of sustained savings and investment ”, speech delivered at the conference “ growth and macroeconomic issues and challenges in india ” organised by the institute of economic growth, new delhi on february 14. bis central bankers ’ speeches india productivity report 2012, suggest an appreciable increase in total factor productivity ( tfp ) at the economy level to 1. 9 per cent per annum during 2000 – 2008 from about 0. 7 per cent per annum during 1980 – 1999. thus, the growth acceleration was contributed by high domestic saving accompanied by improvement in productivity. post - crisis growth moderation the onset of global financial crisis in 2008 interrupted india ’ s growth trajectory. despite being located far away from the epicentre of the crisis, india could not remain insulated from the adverse impact of the crisis. the knock - on impact of the global financial crisis was felt through all the channels – finance, real and more importantly, the confidence channel. 3 initially the impact was visible on india ’ s financial markets – equity prices fell reflecting withdrawal of global investment, currency depreciated reflecting global risk aversion, and money and credit markets came under pressures with substitution of external sources of funding with domestic sources. reflecting greater global integration, the indian trade and business cycles had also become increasingly synchronised with global cycles. 4 consequently, the adverse impact of external demand shocks was manifested in terms of a moderation in indian economic growth from 9. 3 per cent in 2007 – 08 to 6. 7 per cent in 2008 – 09. following expansionary monetary and fiscal policy response, growth recovered quickly during 2009 – 10 and 2010 – 11, before slumping again to 6. 5 per cent in 2011 – 12. gdp growth is expected to be around 6. 5 per cent in 2012 – 13 also. despite the predominant domestic nature of indian growth story, volatility in growth has brought to the fore the debate on the potential rate of growth and the role of macroeconomic policies in stabilising growth around the potential. analysis of the sectoral composition of growth reveals that the growth moderation during 2008 – 12 has been

conducive global economic environment, agricultural growth was partly aided by favourable monsoons. though the share of agriculture in the economy is progressively shrinking, it is important to recognise that the above - trend agricultural growth not only provided some upward momentum to the overall growth but also enabled domestic price stability by helping to keep food prices low. another way to analyse sources of gdp growth is the expenditure approach. from the expenditure side, the higher economic growth was enabled by a surge in overall investment rate largely driven by the private corporate sector. investment was financed mostly by higher domestic saving ( table 3 ). private sector investment grew on the back of increased availability of resources reflecting reduction in public sector ’ s draft on private saving following the rule - based fiscal consolidation. the attraction of higher growth made it easier to access foreign sources of funding. the corporate sector also generated higher internal resources through enhancement of its own retained earnings. this was made possible by greater profitability reflecting improved productivity, lowering of tax rates as well as lower debt servicing costs enabled by lowering of nominal interest rates. 2 the reduction in nominal interest rates, in turn, was facilitated by the moderation in inflation brought about by prudent fiscal and monetary policy. the reduction in the overall interest rate structure also enabled the government to reduce its debt servicing burdens, which partly contributed to a step - up in public sector saving. more importantly, the perseverance with the rule - based fiscal policy under the frbm act 2003 led to significant moderation in all the deficit indicators. centre ’ s fiscal deficit fell to 3. 6 per cent of gdp during the high growth phase from 5. 9 per cent during the 1990s. the primary deficit turned into a marginal surplus. consequently, public sector saving increased to 2. 9 per cent of gdp during 2003 – 08 from a dis - saving of 0. 8 per cent in the preceding five years. another feature was the sustained increase in household financial saving. this largely financed the saving - investment gaps in the corporate and the public sector. with the deepening of the financial sector, there was greater access to bank credit by households, especially housing finance, which was reflected in the increase in household investment rate. the overall gross domestic saving rate of 33. 3 per cent of gdp during the high growth phase facilitated the increase in overall investment rate to 33. 6 per cent without much recourse to external borrowings. concurrently, the productivity of capital was also high as reflected in the incremental capital