Indian Economy Is Overheating: The Economist
Here is a critical take on the Indian economy by world’s most respected magazine The Economist. The magazine says India’s economy is overheating and it cannot sustain the frenetic growth it currently is experiencing. It says: “...things are so hot there is a big problem: India’s current pace of expansion may not be sustainable.”
The magazine says that the “economy is displaying alarming symptoms of overheating. This implies that demand is outpacing supply and hence the pace of growth is unsustainable”. One of the signs is that despite lower oil prices, wholesale-price inflation has risen to 6 per cent. The magazine adds: “Perhaps the only thing really growing faster in India than China is hype.”
In my opinion, there are certain areas like real estate where a bubble is seen, but it’s not time yet to write off India.
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Comments (7)
Feb 5, 2007 11:53 AM
The indian economy is eventually going to lead to 2 facades of population.
Feb 6, 2007 12:54 AM
Nice read, Thanks for the article.,
Feb 6, 2007 1:04 AM
“perhaps the only thing really growing faster in India than China is hype”
—Financial Express disagrees. Salary hikes are also growing faster in India than China
http://www.financialexpress.com/latest_full_story.php?content_id=153912
Feb 6, 2007 4:10 AM
I do not agree with this article. India will continue to keep growing atleat for another 5 years
Feb 6, 2007 6:24 AM
I believe, the Indian economy may not be overheating, but may be reaping the fruits of opening up of economy. Secondly we are not used to such fast growing economy for a long period (last three years it has geared up), which makes us fear of building up some kind of bubble. Thirdly right to information act, media exposure, excellent financial analysis on many TV channels etc. have made econmy players more aware of the scenario and people are prepare to take risk to enhance their production capacity, which might have boosted the economy. Thus multiple factors are working together. I don’t feel we have to worry and slow down suspecting some speculation. The rising inflation is some kind of trade off for high growth. If one wish to have higher growth somebody has to pay high price for it. However, the precautionary initiatives taken by Gov and RBI will balance the situation and will take care of welfare of the country.
Feb 13, 2007 9:50 AM
indian economy is not overheating and coming years will prove it as india will emerge as economic powerhouse`
Feb 20, 2007 1:03 PM
It is too early to say at this point in time whether India’s economy is over-heating. But lets put aside the nationalist chest-thumping and look at this objectively. There is no doubt that several sectors today are facing severe inflationary pressures. In fact, over the last 3 weeks, the RBI has raised interest rates twice, but with increasing inflation, real interest rates are still quite low and the economy will continue to remain flush with liquidity. This certainly raises the prospect of an overheat, at least in the short-term.
However, I dont think this is the bigger concern. The large concern is going to be how we bridge this demand-supply divide in the long run. India is a developing economy, but our current GDP per capita, even when adjusted for PPP, is low. This is a boon today as it will allow us to grow for the next 5-10 years, in spite of the crippling infrastructure, poor education and health levels, etc. Once the GDP gap begins to narrow, further growth will need to squeezed out, basis-point for basis-point. And this will only come from increased productivity—> tighter governance, better public services, a massive education drive and strong and independent institutions. This perhaps, more than any immediate inflationary concern, is our biggest challenge.