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.
Several riders apply. The industrial production series is
notoriously volatile—most economists admit to being baffled by its swings. The
comparison with the prior year period was unflattering. And it would be
surprising if India were not hurt by the agonies of the rich world—after all
from China to Brazil investors are jittery about the outlook, too. Moreover the
Reserve Bank of India (RBI) has been raising rates through the year to try to
bring inflation, running at some 9%, under control. At Mumbai drinks parties,
after a scotch too many, industrialists can be reduced to apoplexy on this
subject—the central bank, they argue, has overreacted, killing growth to tame
an inflation problem that is largely the result of structural factors such as
poor food supply chains.
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