Analysis: India's growth: build in an incompetence discount
By John Chalmers
NEW DELHI (Reuters) - It had been another brutal day for the rupee on the foreign exchanges as India's economic crisis escalated and, travelling home from a visit to Myanmar last week, Indian Prime Minister Manmohan Singh summoned journalists on his plane for a briefing.
The one statement he had prepared for the media that night, however, concerned allegations of corruption leveled against him and his cabinet ministers - not the economy.
Quizzed on the Indian currency's precipitous slide to record lows, Singh blamed the global economic slowdown and the euro zone's emergency, and he voiced hope that the G20 would sort these troubles out at a summit in Mexico later this month.
Two days later, when gross domestic product (GDP) data showed India's growth rate had plunged to its lowest level in nine years, Singh's finance minister likewise pointed a finger at "weak global sentiments", as well as the central bank for its tight monetary policy.
But as warning lights flash on India's economic dashboard - with manufacturing output and consumer demand now fading as well as corporate investment, fiscal and trade deficits ballooning and inflation stubbornly high - few buy the line that it's somehow not the government's fault.
"There is so much denial, but almost all of the problems in India are self-inflicted," said Rajeev Malik, senior economist at CLSA Singapore. "The Indian situation is ... an outcome of policy incoherence, a government that's asleep."
Economists say New Delhi's policy inertia and the absence of significant reforms to sustain growth have now turned India's slowdown from a cyclical one to something that is structural or systemic.
The country is now stuck with lower growth than its potential: not the "Hindu rate of growth" of about 3.5 percent that dogged the state-stifled economy before big-bang reforms two decades ago, but a 21st-century version of that, which Malik calls "growth with a government-incompetence discount". Continued...