E-Paper
Our days are numbered
Why, how and did India’s 2009 growth rate manage to hold the evil forces of the global economic crisis at bay?
The world financial crisis didn’t quite prove to be the End of Civilisation As We Know It — although it did put a fearsome dent in real estate, equity and small Swedish car companies. But the world economy is still limping after its great fall. And all the king’s horses and all the king’s central bankers haven’t quite put it together again.
The International Monetary Fund has said the global economy will end this year with a growth rate of 0.5 per cent. Throw in the statistical margin of error and that’s a thin shrivelled zero. A strong correlation is that the average return in the American stock market this year was the same figure with a negative sign.
Obviously with such a grim backdrop, India’s 6.5 per cent growth rate is reason to crow. Which is why the Manmohan Singh government is doing exactly that. This figure is all the more impressive given how little the UPA has done in providing reform fuel to the fire. What the year proved was that India has put enough of its act together for its growth story to survive the double whammy of Lehman Brothers and Lok Sabha lethargy.
So how did 6.5 per cent reign in India when most of the world ended the Noughties with a Big Nought? It was partly accidental, as Finance Minister Pranab Mukherjee was honest enough to admit. India had been fighting an election and inflation before the economic crisis. One meant too much government spending, the other a cautious monetary policy. Both were medicinal against Wall Street flu.
The other convenient truth is that India’s growth is more internally driven. You could hear it from the rooftops: ‘India is different from China because it is consumption driven.’ Before the crisis, however, the new development was investment, largely by the Indian private sector, adding an afterburner to India’s economic wings. But while India’s private sector is not in the ICU like so much of the West, it is still popping pills — the main one being extra expenditure courtesy Manmohan Singh and extra liquidity courtesy Reserve Bank of India chief Duwuri Subbarao. The problem is that as the year ends, inflation is making a comeback. Double 6.5 per cent and you get where the wholesale price index is heading. Take food alone and the figure is 20 per cent-plus. Those are the numbers that matter as 2010 kicks in. If inflation goes runaway, the fear is the central banks will raise interest rates — and the private sector will go from pill-popping to booking doctor’s appointments. Indian firms are earning; but profit margins are meager.
We have all kinds of theories as to why price tags are growing and what we should do about it. One is that inflation isn’t that bad: India measures it all wrong and underestimates the low cost of services. Another is that it’s largely about a scarcity of certain food items like daal and Dalda, so the RBI can’t do diddley-squat about it anyway.
We’re getting reassurances it will all come down with the advent of 2010. But it is hard to see how India can conjure up sufficient cooking oil and legumes when there’s a de facto Kyoto-style bind on the production of both. Steel prices are readying for a January jump. Even coming close to 13 is an unlucky stat. If interest rates are jacked up, India’s great corporate hopes may falter and the great recovery may be delayed. The Year of the 6.5 could be repeated. Especially if the world economy continues its Ground Zero experience.
