The Global Economy in Turbulent Times

CHAPTER 143 “A Passage to India”: The Outlook Remains Dire¹

E. M. Forster’s book relates to “colonial India” of old, a romantic time of slothful growth, mind-bending bureaucracy, and suffocating red tape—a constant reminder of India before independence in 1947 in contrast with life after liberalization in the 1990s. The new India that had emerged by 2000 was robust and bursting in optimism. Of late, the magic appears to have slipped. After Chinese New Year 2013, I wrote Chapter 142, “India: The Outlook Dims,” concluding, in effect, that India’s sluggish “Hindu rate” of growth is self-inflicted in the face of an unmanageable bureaucracy and politics at its worst. Events have since moved swiftly. An update is due, as India’s once-booming economy slides into a deep sleep. India’s default risk is rising the most among emerging markets as it bucks a regional trend of budget tightening and reform, raising the prospect of a junk debt rating as the rupee (its currency) plunges to new lows.

Not on One Engine

India’s gross domestic product (GDP) rose 4.4 percent in the second quarter of 2013 (against less than 5 percent for fiscal year-ended March 2013 and about one-half the annual rate between 2005 and 2008). The quality of growth is bad as well. The main source of growth came from government spending (up 10.5 percent), with household consumption trickling down to expand by only 1.6 percent while investments and exports shrank 1 percent each. It can’t fly on just one engine, an unreliable ...