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April 2012

Indian growth rate — The new normal

By Tarunkumar Singhal, Raman Jokhakar, Chartered Accountants
Reading Time 1 mins
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In an interview to The Wall Street Journal, Reserve Bank of India governor D. Subbarao has said that the Indian economy can manage a maximum of 7% growth without stoking inflation.

This is significant, especially as it comes from Subbarao, known to choose his words carefully. What he is trying to say is that unless the current bottlenecks in the economy are fixed, the Indian economy will have to get used to a much lower rate of growth than what it recently experienced: 9%.

In other words, this is going to be the new normal. It is more than double the low growth rate trap that India found itself in the 1970s — the so-called Hindu rate of growth — but lower than the ideal.

The writing is on the wall: reform or perish. Low growth will hit tax buoyancy and curb spending, especially for the raft of inclusive measures. But is the UPA listening?

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