India Can Revive Investment by Learning from Itself


By Laura Papi and Kiichi Tokuoka*

India’s investment,  the main  driver of economic growth in the mid-2000s when the country was growing in excess of 9 percent a year, has been sluggish for the past five years.

Private consumption is growing at a rate comparable to pre-crisis levels, but investment has not regained its strength.

The culprit is corporate investment: its share in GDP has fallen to about 10 percent—4 percentage points lower than that in 2007/08. This is a serious concern as India needs more supply capacity.

Reserve Bank of India (RBI)  Governor Subbarao recently said that India’s “non-inflationary rate of growth is about 7 percent,” down from 8.5 percent before the global financial crisis, suggesting that supply constraints—for example in power, coal, and land—have become increasingly binding.

Many reasons have been put forward to explain the investment malaise.

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India’s Slowdown May Have a Silver Lining


By Roberto Guimarães and Laura Papi

The extent of the recent slowdown in India’s growth rate has surprised most India watchers even in the face of ongoing international financial market volatility, high and volatile oil prices, and the uneven global recovery.

GDP growth fell throughout 2011, from a high of 7.8 percent at the beginning of the year to 6.1 percent in the quarter ending in December. The slowdown in the economy has affected the industrial sector particularly hard and has extended to 2012 as shown by the 3.5 percent contraction (y/y) in March industrial production. For 2012/13, we at the IMF project that GDP growth is likely to be about 7 percent.

While India has been affected by the worldwide slowdown, many observers have started to question the inner strength of the Indian growth story.

By international standards 7 percent growth is still very robust, but it sometimes feels like underachievement for a country that was growing at more than 9 percent just a few years ago.

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