The "Hindu rate of growth" is a derogatory description of the low annual growth rate of the pre-1991 Indian economy, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%. In what appears to be an exaggeration, the Financial Times in its latest issue has an article titled "Indias abject return to talk of Hindu growth rates".
Written by James Lamont, the FT story says that "India trails in terms of attracting foreign capital and beating inflation.... some economists and industrialists fear Indias economy could shrink back towards what was derisively called the Hindu rate of growth from initial projections of 9 to 7 per cent this year."
With the India story unraveling due to big corruption scandals and governance deficit this year, the FDI fell by 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.
Spurred by a tidal wave of hot money from the US Federal Reserve stimulus, the big drop in Indian FDI has been largely offset by the surge in FII in the last two years. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion their highest ever in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase. These hot money inflows continue to be a source of instability in the face of the Indian Central Bankers attempts to cool rising inflation. Such hot money inflows accounted for 58% of India's forex reserves in March 2010 compared to 47.9% in 2009, according to the Financial Express.
Even after the central bank boosting interest rates six times this year to 8.25 percent, Indias benchmark wholesale-price inflation has accelerated to a 13-month high of 9.78 percent in August 2011, according to Bloomberg.
It is very likely that the Indian central bankers will continue to maintain a tight money policy in the foreseeable future, and slow down the economy further to fight continuing inflation. I do think, however, that the Indian policymakers will try and orchestrate a soft landing in 2011-12, while still maintaining significantly higher gdp growth rates than the pre-1991 "Hindu rate of growth".
Haq's Musings: Indian Economy Slowing to "Hindu Rate of Growth"?
Written by James Lamont, the FT story says that "India trails in terms of attracting foreign capital and beating inflation.... some economists and industrialists fear Indias economy could shrink back towards what was derisively called the Hindu rate of growth from initial projections of 9 to 7 per cent this year."
With the India story unraveling due to big corruption scandals and governance deficit this year, the FDI fell by 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.
Spurred by a tidal wave of hot money from the US Federal Reserve stimulus, the big drop in Indian FDI has been largely offset by the surge in FII in the last two years. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion their highest ever in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase. These hot money inflows continue to be a source of instability in the face of the Indian Central Bankers attempts to cool rising inflation. Such hot money inflows accounted for 58% of India's forex reserves in March 2010 compared to 47.9% in 2009, according to the Financial Express.
Even after the central bank boosting interest rates six times this year to 8.25 percent, Indias benchmark wholesale-price inflation has accelerated to a 13-month high of 9.78 percent in August 2011, according to Bloomberg.
It is very likely that the Indian central bankers will continue to maintain a tight money policy in the foreseeable future, and slow down the economy further to fight continuing inflation. I do think, however, that the Indian policymakers will try and orchestrate a soft landing in 2011-12, while still maintaining significantly higher gdp growth rates than the pre-1991 "Hindu rate of growth".
Haq's Musings: Indian Economy Slowing to "Hindu Rate of Growth"?
