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June 07, 2012

India in a hard landing

Economist - In a world economy as troubled as today’s, news that India’s growth rate has fallen to 5.3% may not seem important. But the rate is the lowest in seven years, and the sputtering of India’s economic miracle carries social costs that could surpass the pain in the euro zone. The near double-digit pace of growth that India enjoyed in 2004-08, if sustained, promised to lift hundreds of millions of Indians out of poverty—and quickly. Jobs would be created for all the young people who will reach working age in the coming decades, one of the biggest, and potentially scariest, demographic bulges the world has seen.

It seems that the economic doom forecasters are always predicting for China to have a hard economic landing and slow growth but they seem to miss predicting problems for India, Europe and America.

After a slump in the currency, a drying up of private investment and those GDP figures, the miracle feels like a mirage. Whether India can return to a path of high growth depends on its politicians—and, in the end, its voters. The omens, frankly, are not good.

Back in 2011, economists have predicted that a triumphal ‘moment’ will come in the next three years when India is declared the fastest growing large economy in the world.

In 2010, Morgan Stanley’s report - ”India and China: New Tigers of Asia” – suggested that India will soon be Asia’s growth pace-setter and start rising up the economic size rankings, albeit from its current lowly position outside the top ten.

“We believe that, over the next two years, India should start matching China’s GDP growth of around 8.5-9.5%, barring another global financial crisis. More importantly, we think that, by 2013-15, India will start outpacing China’s GDP growth notably.”


In 2011, a Ernst and Young report says by 2013 India will grow faster than China.

Goldman Sachs has outlined the growth sustainability problems for India



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