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India’s economic growth & the entitlement culture

March 28, 2010

Nobody likes to play a spoilsport in the face of buoyance and optimism about India’s economic growth potential. But sometimes it is necessary to acknowledge reality and anticipate possible speedbumps in what is expected to be smooth cruise towards an economic peak. Shankar Acharya’s column on Business Standard refers to the pre-Budget Economic Survey of the government, published in late February, and the Budget speech by the finance minister, as the sort of optimism that any government is prone to express.

The pre-Budget Economic Survey of the government, published in late February, exudes optimism about economic growth: “Indian GDP can be expected to grow at 8.5 +/- 0.25 per cent (in 2010-11), with a full recovery breaching the 9 per cent mark in 2011-12.” In his Budget Speech, the finance minister said, “With some luck, I hope to breach the 10 per cent mark in the not-too-distant future.”

However, he is baffled by Martin Wolf’s declaration that he has “little difficulty in imagining that India can sustain growth of close to 10 per cent a year for a long time” (Financial Times, March 3, 2010).

Shankar points out several truths many in a celebratory mood might be averse to acknowledging. For instance, that the expansionary fiscal actions has doubled the combined fiscal deficit in 2009-10, compared to the pre-recession 5% in 2007-08. The situation could be exacerbated with inflation and policy rate increment expectations. And, significantly, that the the economic growth in recent years has been lopsided, with very little contribution from industries, which are still burdened with poor infrastructure, unfeasible labour laws and complex tax structures. Furthermore, RBI’s six-currency real effective exchange rate (REER) index of the rupee has shown an appreciation of a hefty 15 per cent but remains exposed to vagaries of inflation and policy changes in China with respect to the yuan.

I share Shankar’s skepticism about extraordinarily high growth rates in India in the face of a government which only seems to be nurturing a culture of entitlements – the latest of which could be this.

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2 Comments leave one →
  1. August 4, 2010 6:00 pm

    ***PROD***

    (You owe us a post on the whole burqa-hijab-debate!)

    • August 16, 2010 5:11 pm

      Actually, the post I have written up only defends heels, hardly addresses the burqa debate which would have to be a different post altogether 😛

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