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poll question
GDP growth slowdown has bottomed out

Votes: 12130

The GDP has recorded its lowest rate of growth in a decade. But is the worst over?
Defending the motion


With just 4.8 percent GDP growth in January-March, chances are that the economy has bottomed out. For one, domestic inflation is headed south. Secondly, global commodity prices are declining, which wi ll help rein in the current account deficit. Inflation and CAD have been the biggest worries for the Reserve Bank of India. The fall in both will help the central bank further cut interest rates going ahead. Already, exports have started looking up. Once the developed economies start witnessing a meaningful economic recovery (and there are signs this is happening), things will start getting better for Indian economy too. Indications are that in one or two quarters green shoots will become a reality.
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Against the motion


Even astrologers cannot be sure about the final direction of growth in the year ahead, as the Indian economy is now globally interlinked. If you can predict the global economy, it would be easier to p redict the Indian one too. It is tempting to see the 2013-14 GDP numbers as marking the low point, but let us not forget that the whole of last year we kept saying this every quarter as GDP numbers kept falling. The finance ministry and the Planning Commission Chief, Montek Singh Ahluwalia, even claimed that the CSO’s advance estimates of GDP of 5 percent were woefully pessimistic, but this is exactly what happened. The problem is that the world economy is still very uncertain. The Indian slowdown could continue for another year for the following reasons. One, it is election-time, and so no businessman worth his salt will be busy investing when he does not know what kind of government he will get. If investment does not pick up, growth will not too. Two, the US Fed is talking of reducing its quantitative easing – and this could happen by September. If Ben Bernanke walks his talk, the direction of capital flows could reserve or at least slow down. This will turn out to be another speed-breaker. Three, the rupee has been ruling weak for the last couple of weeks. This means any fall in commodity prices may get partly neutralised by the fall in the rupee. Four, the government will probably try to woo voters by hiking support prices for foodgrain and spending more on pork-barrel schemes – which is exactly the wrong message going to foreign investors and the rating agencies. Five, the buoyancy in gold imports – despite desperate official efforts to curb the inflows – shows that Indians have greater belief in the metal than in the UPA’s mettle. This is not good news for consumption either. Gold is a form of saving and if more people are tanking up on gold due to its recent price fall, it means they will spend less from their surplus incomes.So, the turnaround in GDP that many expect may be vastly exaggerated.
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