Prem Shankar Jha

The Indian economy is in free fall

For more than five years, the Indian economy has been growing progressively more slowly. The chief victim has been industry – which should be the muscle and sine of economic growth. The Indian government and its Central Bank have spared no effort to put the blame for this on the global recession. But the truth is that it is its own policies that have all but killed the economy. Today overall growth has collapsed from 9.4 percent three years ago to 4.8 percent. Industrial growth has almost disappeared, from 12.8 percent in 2009-10 to less than 2 percent.
No one in government even wants to talk about the fall in employment. The single cause of this catastrophe is that in the face of recession the Indian Reserve Bank has steadily raised interest rates instead of lowering them.

To justify this suicidal action it has put forward different justifications at different times. The most consistent is that India is suffering from a high rate of consumer inflation. This cannot be brought down without raising interest rates. What the Central Bank refuses to do is distinguish between demand pull and cost push inflation. This is suicide.

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