Why 8-9% growth isn't coming back

For a country that grew at 3-4 percent GDP famously called 'Hindu growth rate',  8-9 percent growth of some recent years made for a giddy experience. While the economy was on an uptrend, largely on the strength of 'easy money' in the global economy and the delayed effect of the reforms of the 1990s and the early 2000s, policymakers began talking of India achieving double-digit growth rates and overtaking China by 2020.

That dream was never realised and may never ever be realised unless our policymakers push some hard reforms. Policy paralysis at home and turmoil in the euro zone has caused our growth rate to fall to 6-7%. Yet, our policymakers like Montek Singh continue to delude themselves with claims that India can continue to grow at 8-10 percent for 20 years.

But the “golden age” high growth rate isn’t coming back. Between 2003 and 2008, the world was full of 'easy money' owing to the US Federal Reserve’s low interest rate. That period of high liquidity lifted up economies evrywhere in the world, specifically Asia and particularly India due to the shift of global manufacturing jobs to China and service sector jobs to India. And when the 2008 financial crisis struck, and global liquidity dried up, Indian government stepped in with large scale welfare policies which included petroleum, urea subsidies, tax exemption to big corporates and low interest rates to keep the growth rate high.

But by then, policymakers had gotten used to years of high growth without any effort on their part to take forward the reforms of the early 2000s and common man gotten used to petrol and diesel subsidies. Thus the withdrawal of subsidy regime became politically suicidal. The high spending of those years, failure to address structural economic reforms, fiscal mismanagement, coalition politics, pending tax reforms, failure to check inflation add to India's woes today.

Today, the Indian economy is completely out of juice. Here on, 5-6 percent growth may become the new normal, and even that can be sustained only by fast-tracking pending reforms.