Here’s one more person who thinks India’s ‘new normal’ growth rate is going to 5.5-6 percent: Ruchir Sharma.
The head of emerging equities at Morgan Stanley Investment Management and author of recently released book “Breakout Nations” believes that the superlative growth rates achieved by India between 2003 and 2008 (above 8 percent) was an extremely short-term phenomenon driven by a huge gush of global liquidity, and did not pave the way for future high growth rates.
“I think this was entirely a global phenomenon,” he said in an interview to The Economic Times, referring to the phenomenon of giant-sized growth in emerging markets after 2003, including India. “All emerging markets were doing well and now what we are seeing is that the global credit bubble has burst, all emerging markets growth rates are coming off.”
In other words, it was all about the liquidity. It was never really government, or economic policies, or anything else that India did to lift its growth rate. “We never deserve (sic) that much credit for the boom and we don’t deserve as much flak as we are getting for the fact that growth rates are coming off,” he says.
Growth rates coming off is right — in the March-ending quarter, India’s GDP growth slowed to 5.3 percent, the slowest in nine years. Worse, it looks increasingly likely that the economy might be stuck around those kind of growth rates for some time to come.
That no surprise to Sharma, who believes “the old normal is the new normal” for India. “Over 2003 to 2010 you can argue it was an aberration in a way. And that we are now going back to the pre-2003 growth rates.” And by that, he means 5-6 percent growth.
He’s not the only one to believe that. Firstpost has argued the very same thing in a story two months ago (read story here).In recent weeks, some international brokerages have also downgraded India’s growth estimates for this year and the next to 5-6 percent. So Sharma is in pretty good company.
In addition, like most experts, Sharma believes that only one thing can lift the economy out of the quagmire of slow growth: aggressive reforms. “There is remarkable consensus: we need to bring subsidy down dramatically. That means raising LPG and diesel prices. Second, send a signal out by allowing FDI in retail and let the states decide whether they want it or not. The other tactical stuff, like GAAR you have to specifically state that this is only to try and figure out if money laundering is going on,” Sharma told the newspaper.
Yes, there’s no doubt aggressive reforms are required to get the economy’s engines whirring again at top speed. But across the board, from economists to businesses, faith is diminishing in the government’s ability to implement much-needed reforms.
Last week, foreign investor Fraport AG, a German airport services company, frustrated by the lack of action on the part of the government, angrily claimed that “this government doesn’t have any spine or drive”. “I personally doubt that anything will happen in the lifetime of UPA-II,”Fraport India managing director Ansgar Sickert told The Economic Times.
It’s not the only one seeing red — or feeling the blues. In a report titled “Farewell to Incredible India”, The Economist magazine also noted that bereft of leaders, India is destined for a period of lower growth. “The near double-digit pace of growth that India enjoyed in 2004-08, if sustained, promised to lift hundreds of millions of Indians out of poverty—and quickly… But now, after a slump in the currency, a drying up of private investment and those GDP figures, the miracle feels like a mirage.”
Is India going to prove all these naysayers right?