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BOOM OR NO BOOM, INDIA CAN GROW AT 9%

T. T. Ram Mohan

The Economic Times, June 24, 2010

The Indian economy grew at an average of 9% in 2004-08 . This burst of growth surprised people since it had not been immediately preceded by any burst of ‘reforms’. Some commentators now think that this burst is a something of fluke linked to the global economic bubble. The global bubble burst following the sub-prime crisis. So, these commentators believe that a return to the 9% trajectory is unlikely in the near future.

They are likely to be proved wrong — and sooner than thought earlier. Until recently, it appeared that the Indian economy would grow at 8-8.5% in 2010-11. Only in 2011-12 would growth touch 9%. On present showing, there is every prospect of the Indian economy growing at 9% in 2010-11 itself.

This optimism is based on the latest figures for growth in the recent past. In 2009-10, the Indian economy grew at 7.4% even as the world economy struggled to come out of the worst financial crisis in a century. Not many had expected such a strong recovery following the fall in the growth rate to 6.7% in 2008-09. The recovery in 2009-10 was strong despite agriculture doing badly on account of drought. Agriculture grew only by 0.2%.

What conclusions can we draw from the recent growth experience? The first and, perhaps, most important conclusion is that growth of close to 9% in 2004-08 was not entirely the outcome of the global boom and cannot be construed as something of a bubble. If that were the case, the deceleration in growth rate in the Indian economy in 2009 and 2010 should have been as sharp as that of the global economy and the subsequent recovery as slow. Neither has happened.

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