There was a time when India (along with China ) was considered to be the global growth engine. The growth rate in the economy was almost double then of what we are witnessing in the present. India was shining indeed, supported by rich natural resources, cheap labour, significant demographic dividend and last but not the least, inflow of the foreign capital.
As suggested in an article in Livemint, it was a combination of these factors because of which the economy seemed to address the contradictory demands of social welfare and capital growth in a post liberalization era. Higher subsidies were shelled out for the poor along with the rise in crony capitalism. Still, the difference between the affluent and poor continued to widen. The conflict between the rich and masses over natural resources and the flawed policies that promoted crony capitalism got more intense. However, high growth rate in the economy covered all of this for some time. It took a huge global economic crisis to expose the flaws in India's economic growth model.
As the growth rate in the economy took a hit, the pressure kept compounding further because of the high leverage in the Private sector, falling tax revenues and the pressure to continue with subsidy schemes to support the vote bank. What resulted was high inflation, increase in fiscal deficit and weak currency. Indian economy, once hailed as global growth engine, now faced a threat of sovereign rating downgrade. While things have improved somewhat since then, India is far from a stable recovery. And the key question remains. Will we ever be able to witness 9% growth rate again? Or was it something that just happened by accident. We believe that we are unlikely to witness high growth rates in the economy, at least in the near term. Hopes are high that a business friendly government will accelerate the reform process and boost economic growth. However, even in the best of scenarios, we believe it will take a long time to clear the huge economic mess that years of flawed policies have resulted in.