India Loses More Ground on China
October 20, 2011, 9:00 AM IST
There were only a few people to begin with who really thought India’s economic growth rate would outpace China’s – at least anytime soon.
Now, those voices are likely to be fewer and weaker.
As China’s economic growth hovers close to double digits, India is having to admit its 9% Gross Domestic Product expansion goal for the year ending March 31 is now pretty unrealistic.
“Let me not hide the fact that I have been disappointed by our growth performance over the last few months. It is evident that India’s growth rate in 2011-12 will be less than what we were expecting in February when I presented the Budget,” Finance Minister Pranab Mukherjee said in a speech during a media event on Wednesday.
In February, the finance minister said India’s economy was on track to expand 9% in the year through March 2012. On Wednesday, he hinted that 8% – or less –was more like it. That’s what “most observers” are expecting, Mr. Mukherjee said. He stopped short of making a formal growth forecast, saying he’ll share that with Parliament in December.
Those observers would appear to include the World Bank, which in a report released Wednesday echoed Mr. Mukherjee’s fears: it said that India’s economic growth is likely to slow from 8.5% last year to between 7% and 8% over the next two years. In other words, all those GDP headlines are likely to include a 7, or 7 point something, not the 8 or 9 or even 10 of the government’s dreams.
So what’s to blame? In his speech, Mr. Mukherjee said global financial woes – from high oil prices to the volatility of other commodity prices and capital flows – were largely responsible. Monetary policy tightening and interest rates, a response to the country’s uncomfortably high inflation, didn’t help either, he noted. These are points the World Bank also covered.
If –as the finance minister put it – “the dark clouds [that] have gathered in the global skies” are to blame, why isn’t China also suffering?
It appears that Beijing has done better than New Delhi at boosting domestic demand, an area that acquired greater relevance as Western countries are struggling with a prolonged economic slowdown.
“With the slow growth expected in core OECD countries, India’s GDP growth will have to rely on domestic growth drivers,” the report said. To do this, it said major structural reforms aimed at achieving fiscal consolidation (another big challenge for India) and at encouraging investment would be necessary. It said that “regulatory uncertainties” – ranging from environmental clearances to land acquisition laws to tax reforms – were holding back investors, an issue that is less of a problem in China. To strengthen domestic growth, it urged India to clear these up and to invest in infrastructure, among others.
China, by comparison, is now relying more heavily on its domestic demand and this is already helping its economy make up for a weaker export market.
Figures released earlier this week show that China’s gross domestic product expanded 9.1% in the quarter ended Sept. 30 from a year earlier, only slightly under analyst expectations of 9.2% growth.
The World Bank report also said that, compared to the current year, in the year through March 2011 India benefited from the strong performance of its agricultural sector, something that depends largely on a good monsoon.
Mr. Mukherjee invited his audience to look at the brighter side (rather than East.) “This is disappointing but at the same time we must not lose perspective of the global situation.”
However, China didn’t crop up in his comparison, which focused instead on debt-strapped Western countries – and their less than 2% growth
