In the last couple of months growth euphoria has been sweeping the media, business associations and government pronouncements. Official estimates of 8 per cent plus GDP growth in 2003-04 have fuelled the optimism.

The third quarter (Oct-Dec) CSO estimate of 10.4 per cent GDP growth has induced headlines of India being the fastest growing economy in the world.

Senior government spokesmen (including the finance minister) have been reported to confidently project 8 per cent growth for the next several years.

Election pamphlets are promising 10 per cent growth. How serious is all this? Has the Indian economy really attained a new trajectory of sustained 8 per cent growth? I am afraid not, for the reasons spelt out below.

To begin with, let's put the 8.1 per cent growth of 2003-04 in perspective. It follows a sluggish 4 per cent rate recorded in 2002-03, coming after a Ninth Plan average growth of 5.5 per cent, which, in turn, reflected a marked slowdown from the reform-driven growth surge of 6.7 per cent experienced in 1992-97.

Much of the economic dynamism of 2003-04 simply reflects an exceptional rebound in agriculture from a drought-affected 5 per cent drop in 2002-03 to a strong 9 per cent recovery thanks to the best monsoon in 20 years. Services also grew strongly and industry did moderately well.

If the last two years are averaged, then agriculture reverts to the recent trend of 2 per cent growth and overall GDP shows a healthy but unremarkable 6 per cent increase. No clear evidence of a new 8 per cent growth path here.

Let me turn to the major reasons why India's medium term (next 5 years) growth is far more likely to be constrained to 6 per cent or below than to rip along at 8 per cent.

Savings-Investment: Growth requires investment, which has to be financed by savings. In the past five years, India's investment-GDP ratio has been firmly stuck in the range of 23-24 per cent. This is simply not enough to generate sustained growth of 7 or 8 per cent per year.

Economic growth at this pace requires investment ratios of 30 per cent or higher. That's the lesson of the "miracle economies" of East Asia. Their exceptional growth performance was built on high rates of investment and savings.

Actually, private savings of households and companies have done well in India, comparable to East Asian countries. But this good record has been thoroughly undermined by dismal performance of public savings.

In the last four years, government dissaving (revenue deficit) has averaged over 6.5 per cent of GDP and shows little sign of serious improvement. With such record levels of dissaving there is no chance of achieving the national investment rates necessary to propel an 8-per cent growth.

Labour force/Employment: If capital is one key input for growth, labour is another. The starry-eyed optimists point to the "demographic dividend" of the country's young population and fast growing labour force. Yes, there is potential here. But labour has to be employed to produce output.

Unfortunately, our track record in generating employment in the last decade has been very weak. Without rapid job growth an expanding labour force ceases to be an asset and becomes a huge social problem.

That has already happened and the realistic prospects indicate bigger problems ahead, particularly since much of the future growth in population and labour force will be concentrated in the poor, slow-growing, populous Bimaru states of north India.

The growth outlook is further clouded by the low standards of education, literacy and health in these laggard states. And the extreme fiscal weakness of these state governments precludes rapid improvement of social programmes.

External sector: China and several East Asian countries have demonstrated exceptional skill in harnessing foreign trade and investment to propel their rapid economic growth. Put differently, they have been brilliant at making globalisation work for them.

We have been much more timid and have reaped much less gain from economic integration with the rest of the world. That we account for only about 0.8 per cent of world exports and about 0.4 per cent of the world's foreign direct investment (FDI) inflows testifies to our timidity.

Our recent successes with software exports and business process outsourcing services underline our potential, just as our long-term, lacklustre performance with manufactured exports points to severe policy failures in nurturing an internationally competitive industrial sector.

Politics permitting, our service exports will continue to be a bright spot in our external economic engagement. But without much higher levels of labour-intensive industrial exports and export-oriented FDI we cannot hope to capture the dynamism of high-growth East Asian economies.

The necessary reforms of labour laws, banking, SSI reservations, FDI policies and infrastructure continue to be impeded by politics and vested interests.

Infrastructure constraints: Well-travelled observers have noted that India has the worst economic infrastructure among all significant emerging market economies in the world. Usually, they are referring to electric power, roads, ports and urban services. They used to include telecom but there we have made real progress in the last decade.

We may take some justifiable comfort from the progress on the National Highway Development Programme. But the dismal condition of most state highways and rural roads continues to exact an enormous toll of productivity, growth and jobs in agriculture, industry and exports.

As for the power sector, the long history of hugely inefficient SEBs, massive theft, pervasive under-pricing to agriculture, declining investment, frequent brownouts and blackouts are all well-known problems.

Unfortunately, knowledge of the problems has not spawned quick and durable solutions. Progress has been incremental and not commensurate with the needs of a high growth economy.

Conversely, without much swifter improvement in power, it is hard to envisage sustained fast growth of industry, especially small and medium units, which cannot afford captive power. If power remains the biggest single infrastructure bottleneck today, water could well be the greatest problem in future.

Agriculture: It is hard to find a fast-growing developing economy where agriculture is not growing at 4 per cent or higher. It may be no accident that during India's fastest 5-year growth spurt (1992-97), agriculture grew at 4.7 per cent.

Since then the trend rate seems to have dropped to around 2 per cent a year, even including the 9 per cent bonanza of 2003-04.

The reasons are many and include declining public investment by cash-strapped states, grossly inadequate maintenance of irrigation assets, falling water tables, decaying rural roads, unresponsive research and extension services, soil damage from excessive urea use (encouraged by high subsidies) and a distorted incentive structure which impedes diversification from foodgrains.

Tackling these problems will take time, money, understanding and political will. Speedy resolutions are simply not in sight. Ergo, nor is a rapid and sustained revival of agriculture, without which 8 per cent GDP growth will remain a chimera.

Services: Can rapid growth of services compensate for slow growth of industry and agriculture? I have repeatedly pointed out why it can't.

Services grew at an unprecedented 8 per cent. Yet the economy grew at only 5.5 per cent in that period. The arithmetic of growth is straightforward. For the entire economy to grow at 8 per cent you can't have half of it growing at less than 4 per cent!

Regional dimension: The Tenth Plan presents a consistent set of projections for the Indian economy to grow at 8 per cent. It shows that the states of Bihar, MP, Rajasthan and UP must grow at 7 per cent or higher (like East Asian "tiger economies").

The problem is that in the Ninth Plan period they managed average growth of only 4 per cent. The required acceleration strains credibilty.

Then there are growth inhibitors of rising public debt, weakening governance, AIDS…

After all this, dear reader, if you believe India will grow at 8 per cent in the medium term, well…you will believe anything!

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