{
  "title": "India’s Slowdown May Have a Silver Lining",
  "publication": "IMF Blog, May 24, 2012",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2012/05/24/indias-slowdown-may-have-a-silver-lining",
  "canonical": "https://www.imf.org/en/blogs/articles/2012/05/24/indias-slowdown-may-have-a-silver-lining",
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  "summary": "Authors and date: Roberto Guimarães, Laura Papi; May 24, 2012.",
  "sections": [
    {
      "heading": "Recent slowdown: facts and near-term projection",
      "content": "- Authors and date: Roberto Guimarães, Laura Papi; May 24, 2012.\n- Context: Global financial crisis of 2008-2009 and ongoing international financial market volatility, high and volatile oil prices, and the uneven global recovery.\n- GDP growth dynamics:\n  - GDP growth fell throughout 2011, from a high of 7.8 percent at the beginning of the year to 6.1 percent in the quarter ending in December.\n  - The slowdown in the economy has affected the industrial sector particularly hard and extended to 2012 as shown by the 3.5 percent contraction (y/y) in March industrial production.\n  - IMF projection for 2012/13: GDP growth is likely to be about 7 percent.\n- Perception: By international standards 7 percent growth is still very robust, but it contrasts with rates above 9 percent a few years earlier."
    },
    {
      "heading": "Investment: magnitude, drivers, and long-term implications",
      "content": "- Magnitude and pattern:\n  - Investment reached 38 percent of GDP in 2007/08, just before the onset of the global financial crisis, lifting growth to nearly 10 percent.\n  - Investment growth subsequently dropped sharply, crossing into negative territory for the last two quarters of 2011.\n  - This downturn is unprecedented: with the exception of the September-December quarter of 2008, one would have to go back to the last quarter of 2001 to find a year in which investment fell. Since quarterly national accounts have been compiled, no consecutive declines in investment were recorded until 2011.\n- Drivers:\n  - Weakness in investment has been mainly due to domestic factors, such as high and volatile inflation, but not real interest rates.\n  - Macro variables alone cannot fully explain the weakness; structural factors affecting the business environment were also at play.\n- Long-term implications:\n  - Investment is a component of aggregate demand; its decline must be offset elsewhere to maintain a given growth rate.\n  - Lower investment translates into lower productive capacity and lower average growth over time.\n  - Rule of thumb cited: a one percent of GDP decline in investment could lower trend growth by about 0.3 percent.\n  - The decline of share of investment in GDP by 3.7 percentage points since the global financial crisis could lower trend growth by slightly more than one percentage point.\n  - Long-run income effect: income per capita would be nearly US$1,000 lower in 20 years (more than 50 percent of today’s income per capita) if the economy were to settle at a growth rate of 7 percent instead of 8 percent."
    },
    {
      "heading": "Supply constraints and structural bottlenecks",
      "content": "- Binding constraints and consequences:\n  - Supply constraints particular in power, mining and land have become increasingly binding.\n  - These constraints have raised costs and inflation, damaging investor sentiment.\n- Structural reforms and areas of focus:\n  - Streamlining taxation through the Goods and Services Tax (GST).\n  - Facilitating business investment via additional financial reforms, especially for the corporate bond market.\n  - Facilitating trade and easing labor regulations to boost productivity and job creation.\n  - Education improvements to raise skills and employability.\n  - Fiscal consolidation and reforms to increase resiliency and make growth more inclusive.\n  - Reducing inflation in a durable way as the best contribution the Reserve Bank of India (RBI) could make to rapid and sustainable growth."
    },
    {
      "heading": "Policy steps, recent measures, and the potential silver lining",
      "content": "- Immediate government actions to boost investor sentiment:\n  - Accelerate the pace of project approvals.\n  - Launch high-impact reform initiatives such as rationalizing fuel subsidies and further liberalization of foreign direct investment rules.\n- Priority sectors and measures:\n  - Addressing problems in the power and coal sector as an immediate priority due to cross-sectoral linkages.\n  - Latest budget measures begin this process with some financial reforms, measures to broaden the use of public-private partnerships (PPPs), and an enhanced role for UDIs (unique identification numbers) in targeting government programs to improve spending efficiency.\n- Financial sector and monetary policy actions:\n  - The RBI has continued to implement financial reforms to facilitate infrastructure financing, improve the transmission of monetary policy, and promote financial inclusion.\n- Outlook:\n  - If positive signs are quickly followed by bolder government action, the recent slowdown could have a silver lining by catalyzing reforms and restoring investor sentiment.\n\nSource: India’s Slowdown May Have a Silver Lining, Roberto Guimarães and Laura Papi, May 24, 2012.\n\n---\n\n\n References\n\n- slowdown\n- project that GDP growth\n- worldwide slowdown\n- causes\n\nSource: https://www.imf.org/en/blogs/articles/2012/05/24/indias-slowdown-may-have-a-silver-lining"
    }
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    "Authors: Roberto Guimares, Laura Papi",
    "Published: May 24, 2012",
    "Authors and date: Roberto Guimarães, Laura Papi; May 24, 2012.",
    "Context: Global financial crisis of 2008-2009 and ongoing international financial market volatility, high and volatile oil prices, and the uneven global recovery.",
    "GDP growth dynamics:",
    "Perception: By international standards 7 percent growth is still very robust, but it contrasts with rates above 9 percent a few years earlier.",
    "Magnitude and pattern:",
    "Drivers:",
    "Long-term implications:",
    "Binding constraints and consequences:",
    "Structural reforms and areas of focus:",
    "Immediate government actions to boost investor sentiment:",
    "Priority sectors and measures:",
    "Financial sector and monetary policy actions:",
    "Outlook:",
    "[slowdown](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR041712A.htm)",
    "[project that GDP growth](http://www.imf.org/external/pubs/cat/longres.aspx?sk=25867.0)",
    "[worldwide slowdown](http://www.imf.org/external/pubs/ft/survey/so/2012/RES041712A.htm)",
    "[causes](http://www.imf.org/external/pubs/cat/longres.aspx?sk=25762.0)"
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