November 30, 2006Economy

Growing like never before

What you need to know about India’s stellar economic growth rate

This is an archived blog post from The Acorn.

The Economist and Ajay Shah argue that India may find it difficult to sustain growth rates of over 8% without running into some turbulence.

I argue that a lot of what is going on is owing to procyclical (i.e. destabilising) macro policy. I emphasise the distinction between the long-term trend and the business cycle. What we have seen for three years is the high of the business cycle, exacerbated by poor policies, and should not be mistaken for an acceleration of Indian trend GDP growth.[Ajay Shah]

Edward Hugh, over at the Indian Economy Blog, argues otherwise.

The argument here is, even in the absence of all of this in the short term how fast can India grow, and my feeling is that it can grow a lot faster than the Economist seems to think. My reasoning? I tend to give a lot higher weighting to the demographic component than most other commentators seem willing to do, and I also think that conventional analysis often ignores the speed with which behavioural change spreads (and this at the end of the day is an important part of the productivity picture) in an age of mobile phones and internet connectedness (which is another way of saying that we should expect ‘convergence’ to be much more rapid today than it was in the past. [IEB]

Edward has got it right. For this quarter.



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