With India's GDP expanding at a rate above 8 percent in recent
years, the debate about whether India is overheating revolves mainly
about whether growth is above potential-that is, whether the economy is
exceeding its "speed limit." This paper attempts to shed light on this
debate by providing up-to-date projections of India's potential growth,
including by clarifying differences in underlying assumptions used by
various researchers that lead to a range of estimates. Estimates of
potential growth on this basis range from 7.4 percent to 8.1 percent for
2006/07, and about 8 percent for the medium term. The medium-term
potential estimates have risks on both sides: productivity gains and
investment could be volatile, but determined reforms could sustain strong
productivity growth. 

Full Text