The Indian Economy Blog

November 27, 2006

Inflationary Times Ahead?

Filed under: Business — Naveen @ 1:32 pm

If you havent already come across it, read Too hot to handle: Why the sizzling Indian economy is more at risk than China’s?

India cannot grow as fast as China without igniting inflation because of its lower investment rate, particularly in infrastructure, and labour bottlenecks.

Link thanks to Prashant Kothari.

5 Comments »

  1. It was really a good article.But India has first to mend up its loose fiscal policy so it can go ahead with its economic growth without bumps.

    Comment by Abhishek Upadhyay — November 27, 2006 @ 4:51 pm

  2. [...] No amount of spin doctoring can hide the fact that the UPA government has little to show: the 8% economic growth is not because of it, but not yet in spite of it. But warning signs have already appeared. It is only the happily growing economy has caused the electorate to ignore Manmohan Singh’s overall failure. [...]

    Pingback by The Acorn » Statements don’t equal reform — November 29, 2006 @ 11:34 am

  3. So how does one explain Chinese economy? Little inflation y/y, 10+% growth q/q, $70+bil FDI, and imagine the yuans that needs to be pumped into the economy to buy up that $250+ bil FX in reserves added in 2006? How are they doing it? Is their economy just large enough to absorb all the liquidity without causing havoc – but they got away with it for so long? Does dollar peg (less so now) do such wonders? Are they just those smart people that everyone seems to be talking about?

    Comment by Chandra — November 29, 2006 @ 10:46 pm

  4. [...] Earlier in the week Naveen drew our attention to a recent article in the Economist, Too hot to handle: Why the sizzling Indian economy is more at risk than China’s?. Now the article is an interesting one, but it does revisit a theme which we have already discussed a number of times on this blog, namely just how high is trend growth in India? [...]

    Pingback by The Indian Economy Blog » Sizzling, Or Just Right? — November 29, 2006 @ 11:19 pm

  5. [...] The Economist and Ajay Shah argue that India may find it difficult to sustain growth rates of over 8% without running into some turbulence. I argue that a lot of what is going on is owing to procyclical (i.e. destabilising) macro policy. I emphasise the distinction between the long-term trend and the business cycle. What we have seen for three years is the high of the business cycle, exacerbated by poor policies, and should not be mistaken for an acceleration of Indian trend GDP growth.[Ajay Shah] [...]

    Pingback by The Acorn » Growing like never before — November 30, 2006 @ 4:01 pm

  6. [...] This is the rate at which an economy can (and should) grow without causing excess inflation. The current capacity debate (discussed here, here, and here), in essence, is about what this number is today. Ajay Shah, the Economist, and various investment banks (including Morgan Stanley and HSBC) have repeatedly said that India is overheated – evidenced most clearly by the run-up in inflation, and also by ‘bubble-like’ real estate and equity prices. Skittishness about the policy direction of the current governing coalition supports the prevaling belief that a crash (or, for the less brave, a “cooling down”) is imminent. According to them, economic growth and/or asset prices are both set to decrease in the near-medium term. [...]

    Pingback by The Indian Economy Blog » The Indian Productivity Miracle — December 19, 2006 @ 2:06 pm

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