Wednesday, March 07, 2012

China lowers growth target for 2012

China is targeting a growth rate of 7.5% for 2012, the lowest in eight years. This is an economy that had grown at 10% not long ago. So, it's not clear why there is so much breast-beating in India over the decline in our own growth rate from 9% to around 7%.

The international environment has turned adverse. This affects emerging markets in two ways: exports and financial flows.China gets more hit in respect of the former because it's an export-oriented economy. India is, perhaps, more severely impacted on the second  count. The short point is that the primary factor in the decline in the growth rate is the external environment and not what's going on within the country- or what commentators like to call 'policy paralysis'.

To my mind, talk of 'policy paralysis' or the absence of reforms limiting growth is overdone. As C Rangarajan, Chairman of the PM's Economic Advisoru Council, has pointed out, the present policy regime can support growth of 8-9%- provided the international environment is normal. How to achieve 9% in the face of adverse international conditions is the challenge now- and this can't be addressed in the short-run. It requires concerted action on several fronts over a longish period.

2 comments:

Anonymous said...

To say that the primary factor in the decline in the growth rate is the external environment and not what is going on internally in a country is not correct. You have said in an earlier article that with increase in coal mining and increasing electricity generation growth rate can be increased, which presently are at low levels. There is a policy paralysis existent today and this definitely is bringing down the growth rate. Both internal policy making as well as external environment are equally important to achieve the growth rate of 9%. Internal mechanism also needs to be augmented and policy paralysis should be addressed rather than lamenting that everything is related to external environment and nothing could be done within the country.

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