Let's be clear at the outset — the Indian economy is not slipping into recession. Instead, after accelerating for three years since 2004-05 from 7.5 per cent to reach 9.4 per cent in 2006-07, the growth of the gross domestic product has slowed just a bit to 8.7 per cent this year. That still makes India the second fastest growing economy in the world. Not bad at all. Just seven years ago, in 2001-02, GDP grew at 5.8 per cent.

This kind of growth has never been achieved by India in the past but it is quite possible to sustain it into the future. Going into the new fiscal year, the factors that sustained this growth rate are still strong. These are high rates of domestic savings and investment, strong corporate performance and, based on those, a high tax mop-up which has turned around the finances of state and Central governments. The last is particularly important as this means the government does not have to dip into the citizen’s pockets as taxes to pay for its own existence.

In that case, why is the economy showing signs of a pause? Because, the government is unwilling to make some changes, that would give business the additional wind to push ahead.

This is the biggest downside risk that the Indian economy faces. Alan Greenspan, former governor of the US Federal Reserve, said at a recent seminar in New York that the only reason why the US economy was still not in recession was the muscle built up by US business in the long period of growth post-9/11. The implication is, without that muscle, the recession would have already been a full gale.

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