An Economy Adrift

As the world economy enters a prolonged slump, all signs are that India has also been dragged into the biggest global downturn in 75 years. The expectations until late last year that the Indian economy would be relatively unscathed because of its dependence for growth on internal rather than external demand have long since evaporated.

Going by the Central Statistical Organisation’s (CSO) advance estimates of the gross domestic product (GDP) in 2008-09, India will end the current fiscal with growth of 7.1%, the “second fastest” in the world. But while the economy expanded by 7.8% in the first half of 2008-09, the situation has since then steadily worsened week after week. And while the CSO has taken into account information up to November 2008, many important indicators have turned negative thereafter (manufacturing growth, export expansion, bank credit) and others (overall industrial growth) are in the low single digits. Reports of layoffs in the hitherto booming sectors have become common and, most depressingly, the slowdown has begun to spread to the informal sector, which has begun to experience large increases in underemployment. To make matters worse, while annual inflation in wholesale prices may have fallen under 4% (as of early February), consumer price inflation (as of December 2008) was 10% and more.