8% GDP growth rate...why are we in a hurry!

The recent rally in the Sensex and Nifty reflects the faith of investors in the sluggish Indian economy. The recent upsurge in our stock market has also coincided with a falling inflation trajectory and strengthening rupee.

 

With optimism is at its peak, investors and analysts are predicting Sensex to cross 30000 points in next 8-12 months. The overall market & investor sentiment seems to have improved with regular feeds of key Economic Data. The experts expect the Indian GDP to achieve 8% growth level very soon.

Till very recent, Indian economy was reeling under a slow growth regime and the gap between the GDP growth rate and rate of inflation has widened majorly since 2010. This had resulted in high interest regime and made economic activities, expensive and unviable. It caused major sufferings for common man as high-interests, high commodity prices, low manufacturing, agriculture and service sector performances created a gloomy season, which further widened the income disparities forcing people to curtail their expenditures, reflecting in further economic slowdown and job cuts.

In this case, I believe in the old saying “slow and steady wins the race”. Since, an inflated growth rate may result in a continuous and persistent high inflation rate, which may further warrant high-interest rates.

The high inflation rates would adversely impact companies with high debts. The high inflation rate would also adversely impact market sentiments, investor moods and fortunes of industrial activities, which could get into another vicious cycle of low spends, job cuts etc.

The higher interest rates would mean higher cost of money and would further result as limited spending in the economy. 

Hence, I strongly feel that the Indian economy must grow at a steady and sustainable pace and should not be forced into a bull run. The GDP growth rate at 5.5%-6%, for next two-three fiscal years, would be suitable for a long-run sustainable economic growth, which would allow poorest of the poor to participate in the India growth story and would not be reeling under high cost-high inflation regime. 

A steady GDP growth rate would even avert any major upsurge in inflation and the overall economic activities would remain sustainable, while the overall growth story remains inclusive!