The term ‘Hindu rate of growth’ was coined to describe the sluggish growth rate in GDP during the first few decades after independence. The Hindu rate was an ironical remark of the traditional Hindu lifestyle that kept them satisfied with small means. The Five Year Plans formulated to move the Indian economy to a higher growth trajectory did not succeed for the first four decades to bring any outstanding result. Even during the turn of this century, the Planning Commission’s projected 8% GDP growth rate seemed to be quite ambitious. However, removing all contentions India has been able to achieve a high GDP growth rate in recent years, with the GDP growth rate being 9.4% and 9.6% over the last two years. However, worldwide escalation of prices of oil, food and metals and a global financial market crisis has brought the danger of the Indian GDP growth rate being arrested. The Central Statistical Organization has scaled down the projected growth rate for 2007-08 to 8.7%, lower than the earlier projection.

The pertinent question that remains is will the deceleration in growth rate wipe away the recent gains the country had attained or is it only a temporary phenomenon? With the annual budget to be finalized soon, it remains to be seen whether the Indian Prime Minister and Finance Minister will be able to frame fiscal measures that could give the country the necessary financial boost while containing inflationary pressures. The macroeconomic fundamentals of the domestic economy are believed to be in sound shape. The slow down in growth can be attributed to a largely global phenomenon. The US economy on the verge of recession and a depreciating US currency is not good news for India. The appreciating Indian rupee might spell doom for Indian exports as well as its huge BPO and IT industries. The appreciating rupee and a stagnant interest rate has already brought nervous reactions in the equities market with crumbling stock prices in the beginning of this year. While the secondary market does not necessarily define the health of the economy but downsizing of Foreign Direct Investment (FDI) can bring difficulties for the country.

Another reason of the deceleration of the growth rate of the economy is the fall in the growth rate in the agricultural sector, one of the neglected areas in the recent spurt of globalization. The projected 2.6% growth rate for 2007-08, a 1.2% fall from the growth rate recorded in the previous period will add to the inflationary pressures of the economy. A failed public distribution system and malfunctioning rural employment guarantee programmes will add to the woes of the rural poor.

The challenge that remains before the Indian finance minister is to provide economic stability and curb inflationary forces. However, whether the pressures of presenting a populist budget will allow him to meet his ideals remains to be seen.

Source: Commodity Online
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