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International Issues/ Economy/ Foreign Affairs

Why India cannot grow at 9% any longer?

The years 2004-2008 were good for India…it grew at sustained growth rate of 9%. But, India did grow at that rate because of global boom (I feel) and the ballooning of Indian exports due to its software industry. Then, came the ‘mini depression’ or the great recession in US and software exports fell flat and BPOs shrunk too much in their operations. Of course, it could not be possible to grow at 9% rate for longer time!

Basically, Indian Economy and its markets are not insulated any more like it was earlier. It has become much more sensitive to global economy trends, with its huge share of global exports ( other than software, I mean) and increasing FDI in Gross domestic Product of India. China, the only profiteering ‘global manufacturing factory’, has directed its exports to India after having saturated America. Despite giving loan of 2 trillion dollars to America in order to keep open the US markets to its exports….China needs India for its sustained growth in exports. There is recession in USA and low consumer confidence has dampened the usual spending spree. China is booming but it cannot be ‘Chimerica’ like it was earlier. The markets in the US are not growing? Only China and India could sustain its domestic growth to great extent despite being surrounded by deep recession in Europe, America, Japan etc. Germany is doing well but cannot hold up Europe on its own. So, you can find government intervention in private sector in most countries…to regulate its economy….as discussed before in this blog. At least, a lesson learnt in US is making every other country pre- cautious. Another problem of doing trade with China is resultant growing trade deficit ( I have discussed this elsewhere in my blog)! China’s business model allows only exports due to the fact… it is a global manufacturing factory. Now, such a situation does not encourage any country to do trade with China. Such trade only results in trade deficit.

There is growing ‘aging’ population in the US….there will be more entitlements dished out in revenue and percentage…social security( for retirees), medicare for the aged, medicaid for the poor – this means that these entitlements will swallow 20% of GDP unlike 7% of GDP today. There will be more people to be taken care of by fewer who will be earning. This will result in a daily struggle…. like due to the debt crisis happening in Greece today. Keeping all these factors in mind, it will be impossible for India to grow at 9% any longer. Best it can do is ….grow at 8% or 7.5%. Still, it will be leading the ‘world recovery’ from recession since developed countries like US are growing at meagre 3%.

The major issue is….. India and China are the only markets growing…but they cannot hold the developed world in ‘recession’ by themselves and definitely… even if they do..it cannot be for too long!


About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.


2 thoughts on “Why India cannot grow at 9% any longer?

  1. Good economic analysis.. your column was prescient, as I just heard news today that the Indian economy grew at 8% in the past quarter. I think India is better protected than China. China has bought so much European and US debt, and depends so much on those markets, that their “wealth” is in a way tied to the survival of Europe and US economies.. interesting times!


    Posted by avalok ishwar | May 31, 2010, 6:40 pm

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