Financial markets and analysts are exhibiting signs of
bipolar behavior. Newly installed RBI governor Raghu Rajan has a fascinating op-ed that offers some clear-headed analysis. Here are a few highlights:
“Indian cricket fans
are manic-depressive in their treatment of their favourite teams. They elevate
players to god-like status when their team performs well, ignoring obvious
weaknesses; but when it loses, as any team must, the fall is equally steep and
every weakness is dissected. In fact, the team is never as good as fans make it
out to be when it wins, nor as bad as it is made out to be when it loses. Its
weaknesses existed in victory, too, but were overlooked.
Such bipolar behaviour
seems to apply to assessments of India’s economy as well, with foreign analysts
joining Indians in swings between over-exuberance and self-flagellation. A few
years ago, India could do no wrong. Commentators talked of “Chindia”, elevating
India’s performance to that of its northern neighbour. Today, India can do no
right.
India does have
serious problems. Annual GDP growth slowed significantly in the last quarter,
to 4.4%, consumer price inflation is high, and the current account and budget
deficits last year were too large. Every commentator today highlights India’s
poor infrastructure, excessive regulation, small manufacturing sector, and a
workforce that lacks adequate education and skills.
These are indeed
deficiencies, and they must be addressed if India is to grow strongly and
stably. But the same deficiencies existed when India was growing rapidly.“
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Note: Meanwhile, currency markets appear to be readjusting after exhibiting signs of ‘exchange rate overshooting’
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Note: Meanwhile, currency markets appear to be readjusting after exhibiting signs of ‘exchange rate overshooting’
