Sunday, February 5, 2012

>India’s growth model (and its limitations)

This report explores the idea that India’s economic slowdown is primarily explained by the limitations of its growth model and less by the problems caused by the global situation.

Focusing too much on services in urban areas, India’s economic growth is “creating” the current deficit (since only a small share of services is exported) and inflation (since the rise in agricultural productivity is low and demand for foodstuffs is high) is intensifying income inequalities (absorption of excess labor in rural areas is very slow) and is nurturing public deficits (the State is trying to offset increased income inequality by establishing aid programs).

The domestic financial system also devotes too many resources to finance the public deficit, such that funding for heavy investments (not associated with urban services) is partly limited by the availability of external savings.
India’s growth and enormous economic development potential will clearly continue to draw interest from foreign investors over the coming years.

It is worth noting the presence of macroeconomic imbalances that could increasingly expose the growth path and performance of financial variables to “stop & go” type movements.

To read full report: GROWTH MODEL