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What will drive India's growth?
Wed, 12 Oct Pre-Open

Day by day, the writing on the wall is getting clearer. Certainly, the US and Europe are struggling with the economic crisis. But the economy back home seems to be slowing down too. There seems to be a slew of gloomy data flowing around confirming fears of a domestic slowdown. To give you a peek, excise duty collections in September dropped for the first time in 16 months, confirming the slowdown reflected in recent industrial activity and service sector numbers. This comes along with a contraction in manufacturing output. Topping it all has been a contraction in growth in the services sector, which accounts for about 60% of economic activity. The gross tax revenues that were robust in the last few months are expected to take a hit. Even corporate earnings have not been spared as higher interest rates and input costs have taken their toll.

With such negative pointers all around, an annual growth estimate of 8% may seem a little too ambitious. No wonder then, CRISIL has revised the same to 7.6% for FY12. Even if we get our house in order, the global shocks will be hard to ignore.

So is there a way out of this economic slowdown? Besides the global developments, the rate hikes in the country have impacted investment and demand. Will concerns of a slacking growth be convincing enough for the RBI to hold off on raising interest rates further? Looks unlikely, as the inflation is still at 9%, a level that could prompt another round of rate hike. But the solution to the problem seems beyond RBI. Currently it seems to be fighting a lonely battle with the monetary policy as its only weapon. So what is the best that we can do? While there are headwinds for the Indian economy in the medium term, in the longer term the country can still grow at a robust pace. However, to be able to do so consistently, the Government will have to step in and speed up economic reforms to make the most of whatever opportunities are there in the country.

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