The great indian growth story is fast losing steam. In the ’80s, the term “Hindu Rate of Growth” was used to describe a very low growth rate of 3 to 4 per cent. Now after two decades of prosperity, the country is facing the prospect of seeing its growth rates decline to precisely those alarming levels.
As recently as March 9, Barclays Capital issued a report revising India’s 2009-10 GDP growth forecast from 5.25 per cent to 4 per cent—a sharp 24 per cent cut. Two weeks later on March 18, brokerage house CLSA estimated the GDP at a grim 4.6 per cent. And even the Indian research house ICRIER (Indian Council for Research on International Economic Relations) says growth may be as low as 4.8-5.5 per cent. A few months ago, the economy was on course to achieve a minimum of 5.8 per cent growth.
The last time the growth rates dipped to 3.8 per cent was in 2002-03, following the dotcom bubble bust and 9/11 attacks. This time, however, the downturn is all pervasive. CLSA’s prediction is gloomy.
It says India’s financial risk has grown with the S&P (Standard & Poor’s) downgrade of sovereign debt from stable to negative, falling tax revenues and exploding expenditure due to populist measures. Its 2009-10 forecast is marginally better at 4.6 per cent.
On a more cautious note, ICRIER says things could get worse. A recent paper on the Indian economic outlook for 2008-09 says: “There’s a real risk that the growth rate could plummet to the pre-1980s levels, if appropriate countercyclical measures are not taken immediately, followed by necessary structural reforms.”
Other economic indicators aren’t inspiring either. IIP (Index of Industrial Production) growth for April 2008 to January 2009 was at 3 per cent, significantly lower than the 8.7 per cent recorded last year. Besides, banks have turned cautious in lending and capital outflows have been severe.
Not everyone, however, believes the picture is that grim. HSBC, for one, reckons that India will rebound in the latter half of this calendar year. Says Naina Lal Kidwai, Country Head, HSBC India: “We can still do better than the Hindu rate of growth.”— Clifford Alvares