Column: Back to the Hindu rate of growth?

Apr 18 2014, 03:31 IST
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SummaryGrowth outcome in 2014-15 could belie optimism as sources for growth run dry

What is a Hindu Rate of Growth? The question itself would sound amusing to a young reader! Why would anyone give a religious tone to growth rates at election time? We quickly clarify there is no such intention. A Wikipedia search would inform younger readers that the term refers to India’s dismal growth history of stagnation at around 3.5% for three long decades, stretching from 1951 to 1980. Experienced readers, quite familiar with the Hindu rate of growth and its connotations, would wonder instead why we have dug up a term that lies buried in India’s economic history.

To the young and experienced, both anxious to see growth recover quickly, we would caution upfront that the economy may not have seen the worst as yet. GDP growth could well be lower than forecasts and even slip below 4% in 2014-15. Lead indicators like industrial growth, exports and credit off-take continue to signal no turnaround as yet. But what is even more worrying is that the sources for growth are running dry. Although not betting for a sub-4% outcome, the sheer vacuum in growth drivers within the broad economic context suggests growth could decelerate further south from its current levels, rather than upward as predicted.

Consider the GDP forecasts: RBI, the IMF and market analysts are all cautiously optimistic and expect growth to lift above 5% in 2014-15. What is noteworthy, however, is the consistency with which initially optimistic forecasts have been revised downwards a few times as each year unfolded since 2011-12—actual growth outcomes have systematically fallen below initial forecasts for last three years, as the accompanying graph shows. Why has this been so?

The answer is a straightforward one: assumptions about sources of growth have failed to materialise in varying degrees each successive year. The most recent example is RBI’s initial forecast for 2013-14, and its subsequent revisions down the line. The year itself began with a 5.7% growth forecast by the central bank in May 2013; this was predicated upon a normal monsoon and the related boost to rural demand. As growth began to falter notwithstanding a bountiful monsoon, RBI supplemented its growth outlook with two additional sources of growth—export recovery in response to sharp currency depreciation in the second half of the year and a pick-up in private investment from infrastructure projects cleared by the government towards the last quarter. As we well know by now, these additional sources

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