Views | India lags behind other Asian economies

Welcome to the harsh reality: the Indian economy is now growing at a slower pace than many other Asian economies.

The Indian government said on Friday that the economy expanded by 5.5% in the April-June quarter, a modest 20 basis points more than the rate of expansion in the previous quarter. But it is lower than the growth rate reported recently by some other economies in the region.

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The latest GDP numbers show that India is no longer the second fastest growing economy after China. Mint?s Executive Editor Niranjan Rajadhyaksha tells us more

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In early August, Indonesia said its economy grew 6.4% in the second quarter of the calendar year, powered by domestic consumption and investment. The Philippines said later in that month that its economic growth was a better-than-anticipated 5.9%, with strong domestic consumption once more playing an important role. Malaysia is also keeping pace with India, with its latest data showing quarterly growth of 5.4%.

These new numbers show that India is no longer the second-fastest growing economy after China, something that was taken for granted not too long ago. In 2007, the last year of the synchronized global boom, India was growing by at least 3 percentage points faster than these countries, according to data from the International Monetary Fund (IMF). To be sure, China is clearly in the middle of a sharp slowdown, but its economy continues to grow faster than the Indian one.

Ahmed Raza Khan/Mint

There are two points worth noticing here. First, there are other regional economies that are growing faster than India in the midst of a global mess, which undermines the fond belief that India is much better placed to navigate global storms that other countries in Asia. Second, what makes the picture even darker is that India has weaker economic fundamentals compared with these other Asian economies, with a high current account deficit, high fiscal deficit and high inflation.

Ahmed Raza Khan/Mint

In other words, not only is India no longer the default outperformer after China, but it also has far less policy space?since the government has no budgetary firepower left while the Reserve Bank of India finds it difficult to reduce interest rates at these inflation rate?to stimulate economic growth. In a note published on 28 August, investment bank CLSA pointed out that yields on 10-year government bonds in India are now higher than comparable yields on Indonesian sovereign bonds, and that ?India?s long-term interest rates are similar to those of established high-yielders such as Turkey (8.22%)?.

There are no prizes for guessing where the problem lies. A lot of public attention has been focused on the inability of the United Progressive Alliance (UPA) government to push economic reforms. There is far less appreciation of the fact that macroeconomic management has also been inadequate, as a result of which India now has far less policy power to get the economy back on the tracks.

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Source: http://www.livemint.com/2012/08/31112840/Views--India-lags-behind-othe.html

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