Monday, February 5, 2007

Indian economy showing signs of overheating, says The Economist

The latest issue of The Economist presents an alternative picture to the all-pervasive ‘India Shining’ story. The cover story says that even though India is growing at a rate comparable to that of China, it would not be possible to sustain this pace and that there are some worrying indications of the Indian economy overheating.

· Inflation has risen to 6% despite lower oil prices, above the 5.5% upper limit set by the Reserve Bank of India (RBI).
· Capacity utilization is higher than at any time in the past decade and severe skill shortages have caused wages to spiral upwards.
· Bank lending to firms and households has expanded by 30% over the past year; lending on commercial property up by 84% and home mortgages by 32%.
· India's stock market is one of the emerging countries’ most expensive, with a price-earnings ratio of more than 20.
· House prices in many big cities have more than doubled over the past two years.
· India's deficit widened to more than 3% of GDP in the three months to September.
· India is heavily dependent on short-term portfolio capital inflows, rather than foreign direct investment, which is longer-term.
· India’s total fiscal deficit, including off-budget items such as oil and power subsidies is close to 8% of GDP, the biggest among the main emerging economies. India also has the highest ratio of public debt to GDP, at 80%.
· India spends 4% of its GDP on infrastructure investment, compared with China's 9%. In absolute dollar terms, China spends seven times as much on its infrastructure.
· India's labour laws are among the most restrictive in the world.
· Quality of public services, from education and health to the provision of water, is dreadful, to say the least.

Read the complete article in

No comments: