Wednesday, October 10, 2007

Mystery of Indias growth

is the title of a piece by Swami Aiyar, here in ET today.

For more than two decades, from 1980 to 2003, India’s GDP growth averaged around 6% per year. Reforms in 1990 produced no dramatic acceleration. Then, with no new policy impetus at all, GDP growth suddenly shot up after 2003 to average 8.6% in the next four years. How and why?

He looks at 4 theories doing the rounds:

  • Tipping point
  • Steady improvement followed by exogenous shocks
  • Manufacturing catching up
  • Global boom
I subscribe mostly to the Tipping point hypothesis with the "re-discovery of India thanks to offshoring" which led to a lot of other things happening. But what is interesting is the latter part of his article on what could spoil the party - do read it.

The one question that I have is that role of the parallel economy - unaccounted money. I think there is a strong role of the parallel economy to play in this whole thing - I am also not sure that the effect is entirely positive and good for the country. Real estate in many parts of the country still operates on a large black component. Hawala, terror funds all find their way in a boom period.

But one thing is for sure. As long as the boom lasts (and I am not saying just the stockmarket), this is the time for India. Its now or never.

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