Recent GDP growth numbers for India suggest that there has been a considerable slowdown in growth from above 9 per cent growth to 5.3 percent in the last quarter. So far, a large part of the slowdown can be explained by the decline in world demand and the impact it has had on Indian exports. Looking forward the question of whether domestic demand can compensate for the near zero export growth remains to be answered. While India has had strong domestic demand, we see that this has mainly due to the sharp rise in private investment. Since private investment is driven by confidence, expectations and profit levels, we may see this decline sharply in the coming year. But will not the increase in public investment compensate for this decline and put Indian GDP growth back on track? The numbers are not very encouraging. It will be difficult for the government to compensate for the decline in private investment even assuming that household and corporate investment only go down to trend levels, and do not fall further.
There has been a rapid turnaround in the sentiment about the Indian economy in recent days. A few months ago, nothing could go wrong with the India story. Growth was high, inflation was low, foreign capital was flowing into India, the rupee was strong. Suddenly, everything has turned around. Industrial growth is down to single […]
The last few days have seen a sharp depreciation of the rupee. At a time when inflation is already high and there are significant inflationary pressures in the economy, an exchange rate depreciation is feeding into higher prices. There has recently been a lot of debate on whether there is a passthrough or not. I […]