Several explanations are offered for India’s growth acceleration in the precrisis period: the impact of economic reforms of the 1990s; India’s rapid integration with the global economy; rise of entrepreneurism; and increase in productivity. 15. Underlying all these factors was the massive increase in capacity as investment jumped from 26.9 per cent of GDP in 2003/04 to 38.1 per cent in 2007/08 (Chart-2).
This increase in investment was financed by growing domestic saving, and was accompanied by an increase in productivity driven by improvements in technology, organization, financial intermediation and external and domestic competitiveness. The current account deficit (CAD) during this period averaged just 0.3 per cent of GDP suggesting that the contribution of foreign savings to domestic investment was relatively modest.