My post below on the Eurozone impact on India has drawn jeers from some readers consequent to the latest GDP data becoming available. I am asked whether I stick to my 7% forecast. Another reader warns me that I will have to swallow my words. I accept these comments in all humility.
But that is not to say that I feel the need to change my position. If anything, the low base of 2011-12 improves the chances of 7% growth in 2012-13. That apart, the depreciation of the rupee and the decline in oil prices are positive factors in the present environment.
What do we make of the sequential decline in growth over the last four quarters? I am still not persuaded that major errors of policy have contributed. Most people point to the fiscal situation and say that the government's basic orientation towards higher social spending and reluctance to rein in subsidies has led up to the present situation where a high fiscal deficit along with high inflation limit the scope for RBI to cut interest rates and stimulate investment.
A very basic conundrum remains, however. The overall investment level is close to 35%. Why is this level of investment not producing growth of 8% this year when it did so in the past eight years except for 2008-09, the worst year of the financial crisis? That tells me that the fundamental factor in 2011-12 that impinged on growth in 2011-12 must be similar to that in 2008-09, and that would be the Eurozone crisis. It cannot be any of the policy factors that most commentators point to. Add to this delays in approvals of projects at a time when the anti-corruption crusade has created a fear psychosis and supply bottlenecks in coal and power sectors, and you have an explanation for the slide this year.
It follows that if the supply bottlenecks are sorted out to some extent, and fiscal correction paves the way for a further cut in interest rates, the growth rate should be better in 2012-13, without any of the 'big bang' reforms people are talking about. Maybe the stock market has caught on to this possibility in recent days?
More in my ET column, Slowdown: do we know why?