The Indian Economy Blog

August 16, 2009

India: A Bright Spot Amidst The Global Recession?

Filed under: Capital markets,Growth — Prashant @ 11:38 am

Nouriel Roubini, of the infamous (and silly) Dr Doom moniker, says India might just do OK.

Despite slowing from highs of 8% to 9% growth, India’s economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two-thirds) and income (one-half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets….link

Given Roubini’s track record over the last three years, he’s certainly built some cred. Do you agree with his assessment on India, though?

1 Comment »

  1. On the other hand, the fiscal house is in terrible shape. Just because domestic banks are state controlled does not mean they have low NPAs–often, they keep on reassigning credit to bad borrowers to preserve the illusion.

    Growth rates in the future are also murky. Times were good for the last several years, coasting on good monsoons, tough decisions made by politicians in the past, and a very favorable global climate. Now, global demand has fallen, US/Europe are set to balance away from consumption for some time, and the government has not only produced no major reforms in the last five years, but seems unlikely to produce major reforms in the next five as well.

    So relative to the rest of the world, yes India will probably do better. But it also seems unlikely to match the record of the last few years, unless serious steps are taken to curb the deficit, promote infrastructure and human capital, and usher in serious economic reforms.

    I would also be skeptical about giving Roubini ‘cred.’ His predictions were not timely (many years early) and were primarily about the wrong channel (current accounts, collapsing dollar). He was correct not because he has access to some magic ball or technique; he was lucky. He just guessed in one direction, and there is no reason to believe his analysis was any more or less accurate than other predictions in the noisy environment of economic predictions.

    Comment by Thorfinn — August 16, 2009 @ 1:59 pm

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