GDP growth alone ?

Amidst all the news about rising inflation, strengthening interest rates, there was a different kind of statistics that made news in India. It surely made few in the government elated. GDP growth rate of India, for the year 2006-2007 (April –March, financial year) was 9.4%, highest in the last 18 years, coming on top of 9% growth of the previous year. It indeed is pretty impressive.

But do we really want such high GDP growth rate when we see things in perspective with our inflation rate? Notwithstanding the method of calculating inflation, it is a serious concern which has subsided a bit by the figure coming close to 5%. This after concerted effort by the government and central bank, the RBI. With such high growth rate, there is risk of over-heating and then hard landing. No country can sustain high levels of inflation and our high GDP growth rate in part is fuelling the inflation figures.

High GDP growth increases the demand and with supply not matching up, things become expensive. It is better for India to have GDP growth between 8 to 9% to avoid over-heated economy. We can’t all the time control inflation by our appreciating currency. But I don’t think anyone will accept slower GDP growth rate, so the only way to have best of both the world is to remove inefficiencies. There are huge losses in the value chain for Indian goods and services. Our deficient infrastructure is as glaring as the high GDP growth rate. Unless and until these inefficiencies are done away with, the GDP growth rate won’t be anything to be cherished while being in quagmire of other economic woes.