The Global Economy in Turbulent Times

CHAPTER 142 India: The Outlook Dims¹

It’s a pity India is slipping—it has lost much of its magic. I see two Indias over the past 40 years. The first is the economy of old, which brought forth slothful growth in the face of a suffocating bureaucracy and politics as usual. The statist model seen in the 1970s dragged along an economy stuck with the sluggish 4 percent “Hindu rate” of growth. The second evolved gradually after the 1990s liberalization, and surged with a burst of optimism by the mid-2000s—portraying a democracy that was vibrant, open, and fired by entrepreneurship that overcame a slowly retreating public sector, but undeterred to grow fast, supported by favorable demography, enthusiastic firms willing to save and invest, and prospect of a vast consumption-driven new middle class. The economy has since expanded at turbo-charged pace, culminating in 9 percent plus growth rate in 2007 and 2008. Growth averaged 8.5 percent over 2004–2008. Reserves reached a high of US$292 billion. What’s worrisome now is that the India of old is making a reappearance—much like the Bollywood villain who tries to cheat death, clouding prospects with desperate and dangerous fragmenting politics.

“Rickshaw” Pace

India’s growth trajectory has been impressive since the mid-1990s. Today, its projected economic growth (at “rickshaw” pace) is the weakest in a decade. Latest official data place growth at 5 percent in the current fiscal year ending March 2013 (against 6.2 percent in 2011–2012), ...