Wakey, wakey: India slips to No 4 in growth sweepstakes

Even about a week ago, Kaushik Basu, in an exit interview after resigning as Chief Economic Advisor in the finance ministry, could shoo away the economic cassandras with this argument: but we are till the second-fastest growing economy in the world. What can we do if the whole world is slowing down?

In an interview to Karan Thapar broadcast on CNN-IBN , Basu was asked about the Indian economy’s continuous economic decline, and he replied: “I agree, but now put it in a scale. It has come down according to our own past. But do a little bit of cross-country comparison; I must compel you to do that. Use The Economist magazine’s back page forecast for 42 countries for the year 2012, India ranks No 2. So, the whole world’s growth has come down but we are roughly maintaining the same position in the global chart.”

Correction, Dr Basu. India was No 2. It isn’t anymore.

Hear Rajeev Malik, Senior Economist at CLSA in Singapore, on this: “Tabulation of 1Q12 (January-March 2012) GDP growth rates for EM (emerging markets) Asia shows an interesting comparison: For the second consecutive quarter, India was not the second-fastest growing economy after China.”

The fourth quarter (Q4) GDP numbers released on Thursday by the Central Statistical Office showed growth slipping to 5.3 percent. For most economists, barring the sarkari ones, it was merely a confirmation that the economy is into a free fall from the peak hit in January-March 2011, when GDP grew 9.2 percent.

Says Malik: “India’s growth has slowed largely because of macro imbalances and policy inconsistencies fathered by the government (it has done little else), but some other Asian countries have actually done better despite facing the same global challenges. I doubt the Indian government has woken up to this shifting regional ranking, even if it lands up being temporary.”

In Q4 of 2011-12, India was No 4 in the growth sweepstakes behind Philippines (6.4 percent) and Indonesia (6.3 percent). China, as usual, was tops at 8.1 percent.

Ironing out quarterly blips, in the six months to March 2012, India’s GDP grew 5.7 percent, behind China (8.5 percent) and Indonesia (6.4 percent), thus coming in at No 3 even here.

CLSA’s full-year (calendar) forecast for 2012 still shows India hanging in there - barely - and the No 2 position could be a toss-up between India, Philippines and Indonesia (all projected at 6 percent).

But a lot depends on whether the UPA gets its reform and growth act together by then. Else, it may lose out to the other No 2 candidates, and Thailand at No 5 with 5.5 percent growth projection will be snapping at India’s heels.

Malik concludes: “India’s challenges are largely self-inflicted but not insurmountable. However, they will require a government that is awake and willing to use some political capital, and avoids making more policy boo-boos. The problems are known, the solutions are also known. But the political will to implement the solutions is still missing, which is partly why it is an abnormal cycle and the much-needed adjustment will be more protracted. We’ll have a combination of weak growth and still-high inflation for longer.”