Join the new world

Given the number of people in India and the poverty of all too large a number of them, that India is going to be the world’s fastest growing large economy this year is good news. Poverty is, after all, simply a lack of both stuff to consume and the wherewithal to purchase such, and economic growth is defined as more stuff and the incomes to purchase such. Thus economic growth is, by definition, the solution to poverty. And it really is true that rural India contains one of the world’s great reservoirs of true, absolute and abject, poverty. So, a predicted growth rate of 7.3% for the last quarter of last year, with that rate expected to be maintained in the year to come is good news.

India is forecast to become the fastest growing large economy in the world, surpassing that of China.
Figures to be released by the Central Statistics Office are expected to confirm the country grew by 7.3 % from October to December, while China grew 6.8% in the same period.
If confirmed, the figures will be good news for Prime Minister Narendra Modi who swept to power in 2014 on the single agenda of development.

It’s not just good news for the politician in charge of it, it’s good for the people of the country too. There’re worries though about the future. Well, there are worries about the present too but as ever in an economy, we need to look at the short term, where macroeconomics holds sway, and also at the long term, where it’s microeconomics all the way down.

On that short-term front there are worries about whether the economic numbers are quite as good as presented, leading to worries in the bond markets:

The annual budget, which garners significant market attention each year, assumes greater importance this time as markets test Modi’s commitment to fiscal consolidation that is also key to determining the path of India’s monetary policy after the biggest interest-rate cuts in six years in 2015.

The rupee, sovereign bonds and stocks posted their steepest January losses since 2011 as concern mounts that a higher wage bill and increased public spending to spur economic growth will derail the government’s plan to narrow the budget deficit. A China-led turmoil in emerging markets and the prospect of more increases in U.S. borrowing costs gave investors more reasons to dump Indian stocks, resulting in the biggest outflows since August and making the rupee Asia’s worst-performing currency last month.

However, a lower rupee has its own merits; it makes exports cheaper for the buyers. Exports are an addition to GDP. And then there’s the vast change in India’s import bill as a result of the change in the oil price.

written by Tim worstall for forbes