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Back to pre-crisis growth levels?
Tue, 9 Mar Pre-Open

Judging by the way India's growth has accelerated in the past few quarters, it appears that the economy is on the path to a recovery. But will it be able to grow in the future the way it had before the crisis erupted i.e., at 9% plus levels? In the medium term at least it would appear unlikely, says Ruchir Sharma of Morgan Stanley in an interesting article published in the Economic Times.

Although India and the faster growing emerging markets did not have to suffer the same fate as the developed world, much of the growth had come in due to Americans going on a splurge. After all, interest rates in the US were at an all time low 2003 onwards and this spurred growth in the emerging markets as well. Further, corporates in the developing world raised huge amounts of debt and equity capital to fund their ambitious growth plans, largely from western financial institutions.

Of course, it appears that the emerging nations might retain some of their lost glory. But there is one big change. That is the considerable rise in government debt, which has been a result of stimulus packages pumped into economies. Thus, an expansionary monetary policy has, among many things been responsible for the strong revival in growth seen in emerging economies including India. What it essentially means is this – while there are talks about growth in the developed world reaching a 'new normal', it may not be possible for emerging nations such as India to grow at a rate approaching that of the past (namely 2003-2007).

Having said that, while India's growth rate may not be in the region of 9% plus, it would still be enough to make the developed world envious of it. Moreover, we believe what will push India's growth to a higher trajectory is the growth of infrastructure and the obliteration of corruption. Other means such as following a loose monetary policy will only give rise to other problems notably inflation.

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1 Responses to "Back to pre-crisis growth levels?"

Anil

Mar 8, 2010

I want India IIP data year on year from 2004 to till 2010

With Regards,

Anil

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