Can India sustain the growth story?

Many Indians still believe that we can achieve 9% growth because we have abundant resources. No doubt India's economy is fundamentally sound. Our growth is because of consumption. But we cannot forget that US has an important role to play in everything.

Indian stock markets, a few months back was moving upward as if they were in a hurry to reach the peak. And then the market crashed. Lot have been written and spoken on decoupling theory. Consumption led Indian companies growth story sounds great but in reality, even they are not left when the west goes hammering the market.

A look at a decade back will reveal that even the Indian phenomenal growth was due to heavy spending by US. Americans borrowed a lot and spent over their disposable incomes thereby creating demand all over the world. It helped China to grow to a new height as it heavily relied on exports. At the same time, India exported competitive services to US to earn revenues.

But, India like other Asean countries needed to import huge quantities of various commodities to support its manufacturing industries and to meet the rising domestic needs. This created a viscous cycle where each country helped other country to grow. Commodities prices started rising up and the world economy started booming.

No growth can rely on over-consumption. So when the realty prices in US started falling, everyone realized the ugly fact that many people who could not repay were given huge loans. Subprime starts, markets crash. Mind you its not happening in India, still Indian markets are not left. They too get the thrashing.

Now it’s the reverse of the earlier viscous cycle. Less US spending means lesser imports from Asia, affecting India. So the countries that benefited from US overspending will now suffer. India is one among them.

The recent moves by RBI to curb liquidity in the market have shown far more affect then required. IIP figures released last week shows that the tight monetary policy has affected them badly. Now if we examine the India’s possibility to grow at 9% in the context of recent happening in the stock market, I believe that the growth story is not over. But it will slow down.

{Views expressed above are purely mine}