Is Our Growth Rate too Low? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 19 May 2012
Is Our Growth Rate too Low? A  A  A

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Over the last year, we have been hearing of a steady deterioration in the Indian economy. One of the most pronounced problems has been the falling growth rate. Since achieving high growth levels (above 9%) in mid 2010, we have been on a steady decline. Our growth rate today stands at 6.1%, a drop of one-third from its high.

This is a terrible situation, right? At least whenever I read the news, I get the impression that the economy is going down the toilet. From the falling rupee, to policy paralysis, to stubborn inflation, to increased corruption, and finally to a falling economic growth rate, it seems as though things just keep getting worse.

There is no doubt that these problems are real, and require concrete solutions. But what is also needed is a new perspective. Rather than the fear that fills the financial press, we need a more objective long-term perspective. Once we achieve this, we realize that things are not nearly as bad as they seem.

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For example, the current 6.1% growth rate is too low, right? Let's look at some statistics over the last 50 years. In the 1960s, our average annual growth rate was 6.7%. In the 1970s, it was 2.9%. In the 1980s, it was 5.7%. In the 1990s, it was 5.6%. And in the 2000s, it was 7.2%. So far in this decade, it is 8.0%; the highest levels in 50 years.

Even our current 6.1% rate is decent in comparison to these numbers. Our average growth over the last five decades is 5.0%, so we're doing much better than that now. If we look at other indicators, we'll see a similar story. We are in a better position now that we have been through most of our independent history.

The problem we have is our reference point. We think 6.1% growth is too low because we are comparing it to the 9% levels reached in 2010. We're comparing to the double digit growth China achieved in prior years. When we have very high expectations, we are setting ourselves up to be disappointed.

It is like when a batsman gets out while in the 90s and fails to reach a century. We get very disappointed whenever this occurs. (Especially when the next century may be his 100th!) But actually, 90 is an excellent score. Most batsmen average below 50 runs per inning, so scoring anything above this is very good.

The purpose of this article is not to deny that the Indian economy is facing some significant issues. Like any economy, there are problems that need to be addressed, and it often takes longer than it should to fix them. Instead, the purpose of this article is to shows us that things are not as bad as they seem, and we really have more reasons than not to be optimistic about the future.

Technical Analysis

As part of this week's article, we are adding a segment on a subject that has strong appeal to many investors as well as myself: Technical Analysis. Let me introduce it to you. As you may already know, technical analysis is the study of past market data with the purpose of predicting future prices, using tools such as charts and indicators.

Why is technical analysis important? Some people I talk to don't believe that it works or is relevant. Let me tell you what is it most useful for. When we want to predict what will happen to a stock a year from or two years from now, we can rely on fundamental analysis to tell is if it overvalued or undervalued.

But what if we want to predict what will happen to a stock next week or next month, or even the next day? Now we need new tools, and this is where technical analysis comes in. In the coming weeks, I'll talk about some examples of technical analysis in use to explain what is going on the markets. Stay tuned.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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7 Responses to "Is Our Growth Rate too Low?"

Chandra Shekhar Sood

May 24, 2012

There is no fun in taking pride in having done less badly than yesterday. Again, who knows how true would those numbers come out at the end of the decade; particularly, bearing in the mind the use of poor quantitative techniques and never ending revisions of statistics rampant in the country. Again, after due inflation adjustments, the figure will plummet. The need is to teach honesty to the nation. We all keep cribbing about government inertia; but, always condon our own absence of action. We all crib about corruption in high offices; but, forget our own dishonesty when we take away the dry bread of the poor man to add another pat of butter to our's. Let us stop being knaves and face the truth squarely--the rupee is falling; governance is bad and we only believe in passing the buck / waiting for others to do things we should be doing.


Alankar Ranade

May 23, 2012

6% IS too low. Comparison with 60s and 70s is of no use.
It is clear that we are performing way below POTENTIAL.
This is the time we are supposed to be gaining big time
on the bigger economies.

Our demographic advantage (that won't last for too many
years), all the work done in previous years to set us up
to achieve high growth now is being wasted. Not only is
the growth low, the inflation is high, we have a 'policy
paralysis' and the government is turning socialistic

We have to admit it. We are in a bad position right now.
And there doesn't seem to be a way out anytime soon.


P.Madhava Rao

May 23, 2012

Good analysis. We should have positive approach. Our Prime Minister should take bold decisions taking rich experience at his command and he should be allowed to take such strong decisions.


chaitanya kirtane

May 22, 2012

eagerly awaiting for technical analysis. please give nifty levels each week.



May 22, 2012

The issue is not whether growth is 6% or 8%. With the runaway inflation,how common man is affected and how the growing population will survive? The central government has lost the will to govern and there is paralysis. What use is of discussing the size of the shoes when the patient is bed ridden?


E Vishwa Nathan

May 21, 2012

Thanks for a sane assessment of the Indian economy. It is better to be slow and steady. Compared to the situation in other countries, especially the so called developed countries, we are much better and much sounder.


Abhay Dixit

May 21, 2012

Mr. Dossani's article looks like FM's speech meant to garner votes !!! That may not be the intention.

The danger is growth will fall to 3-4 % unless government acts sensibly. So what is the point in feeling OK?

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