India Back to "Hindu Growth Rate" in 2012?
Written by James Lamont, the FT story says that "India trails in terms of attracting foreign capital and beating inflation.... some economists and industrialists fear India’s economy could shrink back towards what was derisively called the “Hindu rate of growth” from initial projections of 9 to 7 per cent this year."
With the India story unraveling due to big corruption scandals and governance deficit this year, the FDI fell by 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.
Spurred by a tidal wave of hot money from the US Federal Reserve stimulus, the big drop in Indian FDI has been largely offset by the surge in FII in the last two years. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion — their highest ever — in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase. These hot money inflows continue to be a source of instability in the face of the Indian Central Bankers attempts to cool rising inflation. Such hot money inflows accounted for 58% of India's forex reserves in March 2010 compared to 47.9% in 2009, according to the Financial Express.
Even after the central bank boosting interest rates six times this year to 8.25 percent, India’s benchmark wholesale-price inflation has accelerated to a 13-month high of 9.78 percent in August 2011, according to Bloomberg.
It is very likely that the Indian central bankers will continue to maintain a tight money policy in the foreseeable future, and slow down the economy further to fight continuing inflation. I do think, however, that the Indian policymakers will try and orchestrate a soft landing in 2011-12, while still maintaining significantly higher gdp growth rates than the pre-1991 "Hindu rate of growth".
India Story Unraveling
India Soft Landing in 2011?
Inaction Against Corruption in South Asia
2G Corruption Scandal in India
Musharraf at Davos 2008
Imran Khan at Davos 2011
Delhi in Davos: How India Built its Brand at the World Economic Forum
FDI India, Pakistan, China and Vietnam 2003-2010
China's Trade and Investment in South Asia
India and Pakistan at Davos 2009
India's Twin Deficits
Pakistan's Economy 2008-2010