Is India’s economic bubble about to burst?

<br><EM>Johan van Slooten&nbsp;</EM>

Dec. 28, 2011, 5:45 p.m. Published in Magazine Issue: Vol. : 05 No. -12 Dec. 23-2011 (Poush 08,2068)<BR>

Amidst all economic doom and gloom from the US and Europe, growth figures from the upcoming economies in the rest of the world – including China, Brazil and India –  have remained a breath of fresh air. But how long will these “new” economies be able to come up with good news? Or will the American/European crisis pose a real threat to these countries?

In recent weeks, China and India presented new economic growth figures that weren’t as bright as they had been over the past few years. First, China’s property bubble seems to be deflating. “It is bursting,” Chinese economist Andy Xie even said in the Financial Times this week. He predicted prices may fall by as much as 25 percent soon, as sales volumes are sliding and property prices are falling sharply.

Also, stock indexes in Shanghai have fallen by 30 percent since May,  and even by 60 percent since 2008. “That’s as much in real terms as Wall Street from 1929 to 1933,” a spokesman from French bank Societé Generale stated this week.


But China is not the only so-called “Bric” (Brazil, Russia, India, China) country that is facing tougher economic times. The Reserve Bank of India – the country’s central bank – issued a warning earlier this week for continuing high inflation rates and an unprecedented 18 percent slide in the value of the rupee in the last few months.

India’s inflation rate in November was 9.1 percent, which undermines the RBI’s goal to drop the inflation rate to 7 percent by March 2012.


The falling value of the rupee to the dollar is another headache for the RBI. Since July, the rupee has slid by 18 percent, although economists say that this development is beyond India’s control. “The behavior of the rupee is the reflection of the behavior of the dollar,” C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said to press agency Reuters. “There  is little that Indian policymakers can do about this.”

“The rupee is subject to the whims of global investors, who are buying the dollar as a safe haven from the euro-zone debt crisis,” he continued. It makes the rupee less interesting for international investors, resulting in a slide in its value. Economists think the rupee will fall further in coming months.


Another threat to India’s economic growth is the slump in the country’s industrial output, which dropped five percent compared to last year. It was the first fall in over two years.

In fact, the Indian government had expected a growth rate of 9 percent by March next year, but now analysts say India will struggle to grow even 7 percent. While this figure is still much higher than in Europe or the US, it is the lowest growth figure for India in a number of years.

Courtsey: Radio The Netherlands

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