Worse than Hindu rate of growth

Once upon a time, you grew so fast,/ You developed hubris in your prime, didn't you?/ Now you don't move so fast,/ Now you don't seem to know it all

******

How does it feel/ To get the macro so wrong?/ To be a slow growth economy/ With no direction home/ Like a rolling stone

(with apologies to Bob Dylan, "Like a

Rolling Stone")

There is a new talk in India town. When some people suggest that growth in India has crashed, the apologists say "What's the problem? India is still growing at 6.5 per cent, the second highest in the world." And when some people point to the abnormally high inflation above 7 per cent for the last five years, the refrain is equally shocking. For a long time, especially in the pre-globalisation years of the 1960s and 1970s (PG), India had the same inflation rate as now, but growth was considerably lower; so low, that it was immortalised in that evocative description by Raj Krishna — India's GDP growth, at 3.5 per cent, was the Hindu rate of growth. So, 6.5 per cent ain't that bad and congratulations to the Sonia Gandhi-led government for doubling the growth rate and maintaining inflation at "historical" levels.

There are so many problems with such glib assertions that one does not know where to begin. Average GDP growth in the 1960s and 1970s was near exact 3.5 per cent: 4 per cent per annum (ppa) in the 1960s and 2.9 ppa in the 1970s. The investment rate that delivered this growth was a meagre 16 per cent of GDP. In contrast, GDP growth in 2011-12 was 6.5 per cent, and the investment share 34 per cent. If one steps a bit further into the first quarter in 2012 (January-March), GDP growth had slipped to only 5.3 per cent. This is not the quarterly growth annualised, but the growth over the previous 12 months. The world economy was buoyant in the first quarter, perhaps the most buoyant for some time to come! So, before the international problems with Europe, and before the slowdown in world growth circa 2012,

... contd.

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