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December 25, 2011

India's economic growth slumps

Economist - Expectations for India’s economic growth rate have been sliding inexorably. In the early spring there was still heady talk about 9-10% being the new natural rate of expansion, a trajectory which if maintained would make the country an economic superpower in a couple of decades. Now things look very different. The latest GDP growth figure slipped to 6.9% and industrial production numbers just released, on December 12th, showed a decline of 5.1% compared with the previous period, a miserable state of affairs. The slump looks broadly based, from mining to capital goods, and in severity compares with that experienced at the height of the financial crisis, in February 2009, when a drop of 7.2% took place. Bombast is turning to panic.

There has been the slowdown from world economic problems but India is also experiencing other problems.

Years of government drift have meant a loss of momentum on reform, from building infrastructure to controlling graft. That drift was symbolised by the ruling coalition’s decision this month to allow in foreign supermarkets into India, which it was forced to reverse two weeks later after widespread protests and objections from the smaller parties it relies on to stay in power. India’s economy can seem like a bicycle—it needs to keep moving fast to be stable. Once conviction in the destination falters, companies curb investment and hope turns to fear that the country’s problems may be intractable.





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