Growing like never before

What you need to know about India’s stellar economic growth rate

The Economist and Ajay Shah argue that India may find it difficult to sustain growth rates of over 8% without running into some turbulence.

I argue that a lot of what is going on is owing to procyclical (i.e. destabilising) macro policy. I emphasise the distinction between the long-term trend and the business cycle. What we have seen for three years is the high of the business cycle, exacerbated by poor policies, and should not be mistaken for an acceleration of Indian trend GDP growth.[Ajay Shah]

Edward Hugh, over at the Indian Economy Blog, argues otherwise.

The argument here is, even in the absence of all of this in the short term how fast can India grow, and my feeling is that it can grow a lot faster than the Economist seems to think. My reasoning? I tend to give a lot higher weighting to the demographic component than most other commentators seem willing to do, and I also think that conventional analysis often ignores the speed with which behavioural change spreads (and this at the end of the day is an important part of the productivity picture) in an age of mobile phones and internet connectedness (which is another way of saying that we should expect ‘convergence’ to be much more rapid today than it was in the past. [IEB]

Edward has got it right. For this quarter.

4 thoughts on “Growing like never before”

  1. Yes Nitin Edward indeed got it right but look at the farm figures which grew by just 1.7 per cent in the second quarter against 3.4 per cent in the first quarter. Are we going to be a country that that will be importing farm products for rest of our lives? Our only hope now is the new farm retail initiatives of the big private retail players.

  2. RS,

    The real worry is this:

    Indian policymakers seem reluctant to admit that economic growth has exceeded its speed limit over the past three years, let alone slow it. They prefer to bask in the belief that India (can) keep growing ever faster without inflation rising. Palaniappan Chidambaram, the finance minister, has said the Indian economy will continue to grow by more than 8% in the next few years. [The Economist]

    The point is that Manmohan Singh and Chidambaram owe their reputation for keeping the economy growing at 8%. That’ll make them quite unwilling to do anything to slow down the economy to get inflation under control. Even Edward’s analysis is not without caveats.

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