India growth story still encouraging

Even as the global investment majors are cutting their growth forecasts and putting a question mark over the speed at which our economy will grow, Niranjan Rajadhyaksha, the Mint’s executive editor in a recent column tries to analyze how the Indian economy has performed over the last few decades to peep into the future – so as to give us a correct picture.

Following are the key points that the expert makes:

  1. It seems very likely economic growth will be even more sluggish than it was in the previous year, and the most bearish forecasts suggest that we are headed for the worst year since the reforms of 1991. The slowdown in the first years of the current century was more typical of a cyclical downturn, because India then had very low inflation and a current account surplus. The situation now is much more complicated.
  2. Even as there is a growing consensus that no rapid recovery is in sight, there are rumblings that India is headed for a prolonged period of low growth. And some even fear that are already in a new normal.
  3. India’s growth rates began to climb after around 1980. The Indian economy has grown at an average 6.27% in the subsequent 32 years, over several economic cycles as well as the macroeconomic crisis of 1991. So even while it is likely that India is not set to revert to the high trajectory of 2004-08, it is not clear if it is about to sink to the growth levels seen in the Indira Gandhi years.
  4. Some of the structural factors that have sustained growth for more than three decades since 1980 are still in place. India has significantly higher savings and investment rates than it had through most of the past three decades, despite the recent fall in these rates thanks to the deterioration in public finances and corporate balance sheets. India is also an open economy with a large domestic market. And it has a large entrepreneurial class as well as a growing labor force. Even as the way India has been able to grow over the past 30 years offers hope there are also the stark examples of countries such as Brazil that made a mess of it.

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