Growth rate drops

High interest rates and policy paralysis are hurting the Indian economy.

From aspiring to achieve a double-digit growth rate to actually slumping to 7 per cent or even less, if private predictions are to be believed, is quite a fall for the country, once widely seen as an emerging economic power. The latest official data shows the economy grew by just 6.9 per cent in the second quarter of this fiscal and it is the slowest in the last nine quarters. The slowdown in investment and private consumption shows that the troubles are here to stay. The chief culprit for the dismal scenario is, no doubt, untamed high inflation. For too long policymakers kept predicting inflation would ease soon and delayed the RBI response. Then the government left the job of controlling inflation entirely to the apex bank and failed to address the supply side constraints. Chief Economic Adviser Kaushik Basu has blamed “slowdown in decision-making” for the economy’s poor performance. There are other factors: high interest rates, policy paralysis, major scandals, a needless political standoff and uncertainty in the global economy.

Finance Minister Pranab Mukherjee has tried to shore up the sentiment by pointing to the deterioration in the global economic scenario and held out the hope that the country’s growth rate would pick up soon, but economists and industrialists are less optimistic. They feel exports, which have remained robust, will lose the advantage of a depreciating rupee to the loss of orders from Europe and the US. Dark clouds loom on the horizon.

The Tribune, December 2