Not all hype

India is complex. Growth sceptics sometimes miss that point

That the debate over the sustainability of India’s current pace of expansion is globally a top of the mind issue in itself says something about the attention the country is now getting. That it is The Economist which is asking the hard questions is all the more interesting, if not because of the publication’s influence, then the knit-eyebrowed scrutiny it habitually puts economies to. In its current issue, it argues that the hypothesis that India could keep growing at an annual 9 per cent without sparking off inflationary flames is founded on wishful optimism and not realistic calculations. The RBI, in

its view, has been “timid” in cooling the economy down.

Given supply constraints, which the still-in-a-fiscal-tight-spot government cannot do much about, India could be setting itself up for a hard landing. Public-private partnerships alone will not fill the gaps, and even the much-touted demographic dividend may fizzle out if the education system doesn’t deliver. In other words, India needs to get back to the reform agenda before going into celebratory mode.

In broad terms, all this is unexceptional. The challenge, indeed, is to secure the reforms needed to give the growth rate sustainability. The current on-and-off incrementalism is not doing much good. But that does not mean that growth is now thought to be a matter of providence — as some sort of reward for long-accumulated good karmic behaviour. India is not a country open to push-button reforms, and given the sensitivities and opposition, the manner in which they are carried out could seem perplexing even to those involved in the process. Something similar could be said about monetary policy. The RBI must often make calls that seem too risky. But these risks would be worth taking if the probable gains outweigh the dangers. The central bank has made a decision that is actually quite bold, given the pressure it is under to dampen inflation.

Regardless of whether hype appears to be running ahead of reality, India’s decision-makers are not about to abandon their sense of responsibility.