Is the Indian economy a 'fallen angel'?
12 Jun 2012
The Indian economy has been on a free fall lately. At least that is the consensus. There is not a single economist or forecaster who has not pared down her projections for India's GDP growth, this year as well as the next.
After the anaemic 5.3 per cent growth during the fourth quarter pulled down full year growth for 2011-12 to 6.5 per cent, there was a rush to cut the projections substantially. The most optimistic of the recent estimates pegs growth for the current year to remain unchanged from last year's 6.5 per cent.
Now, rating agency S&P's warning that India's sovereign rating could be downgraded has made analysts fret even more. The S&P analysts have highlighted the stakes clearly by asking Will India be the first BRIC fallen angel? If downgraded, India will be the only BRICS country that doesn't enjoy and investment grade rating.
Should we really lose our sleep over every bit of economic data that appears downbeat these days? To answer that we need to understand what caused this downturn in the first place.
Until the 2008 global financial crisis, the Indian economy was firing on all cylinders. The economy finally appeared to have broken free of all the shackles and ready to move into a higher growth trajectory. The government and the Planning Commission were confident that our growth rate would soon touch double digits.
Optimistic forecasters from a well-known global bank predicted that India would outpace China in GDP growth by 2013. Even those who believed that China will grow faster conceded that India could accelerate without running into serious structural problems.
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