More wild than tamed

More wild than tamed

An economist of the IMF has asked a very provocative question about India’s economic growth in recent years—is it wild or tamed?

The answer too should ruffle a few feathers. In a new IMF working paper, Hiroko Oura has revisited four major research projects that have tried to assess what rates of productivity and economic growth the country can sustain right now.

Based on all four research exercises, Oura estimates that the sustainable growth rate would be between 6.8% and 8.8%. But after excluding two studies with extreme assumptions, the estimate of India’s potential growth rate drops to between 7.4% and 8.1%.

That’s impressive, but well below the 9.4% growth rate that we saw last year and the 9%-plus growth we are likely to see this year.

The economy is expanding faster than its potential—overheating, in other words. This is something that both the uberbulls in the stock market and votaries of lower interest rates will have to face up to.