INDIA’S GROWTH STORY

9-10% GDP GROWTH IS HISTORY FOR INDIAN ECONOMY: RICHARD ILEY, BNP PARIBAS

India's economy has entered a phase of deteriorating growth-inflation equilibrium, says Richard Iley , chief Asia economist with BNP Paribas. In an exclusive interview to Rishi Shah , Iley says 9-10% growth is now history and India should brace itself for a 6.5% GDP growth in the current fiscal.

The Economic Times, December 16, 2011

What is your view on India's growth story?

In a way, it is the essence of my latest 'Eye on the Tiger' report. I think the underlying story is that the growth/inflation trade off has deteriorated quite appreciably. My concern is that foreign investors haven't fully priced in this deterioration in the economy's performance. I would quantify that by saying that before the crisis of 2008-09, GDP was growing by roughly 15%, with the split between growth and inflation being 9-10% for growth and 4-5% for inflation.

Clearly, the days of 9-10% growth are in the rear view mirror and we are seeing a marked deterioration in inflation performance. The new trade off for Indian growth and inflation could be a 7-7 split. Even though the GDP would still be growing at a very rapid 15%, the growth/inflation trade off would have significantly deteriorated. The trade off may be worse in the short term.

What is your forecast of GDP growth in the current year?

GDP growth in the September quarter fell to 6.9%. This is likely to be trimmed further when the export data is revised. A range of indicators suggest that the economy lost further momentum in the last three months of 2011. My base assumption is that second half growth will average about 6%, maybe a little lower. That would leave us with a 6.5% average for the whole year.

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