Recession 2011: 2011 could be worse for India as US recession looms large

http://articles.economictimes.indiatimes.com/2011-08-08/news/29864419_1_fiscal-deficit-fiscal-stimulus-financial-crisis

ET Bureau Aug 8, 2011, 08.29am IST

Tags:

• US recession|
• US debt limit

NEW DELHI: India weathered the 2008 crisis well, but there are fears that this time round the country is not even ready for a crisis of much lesser magnitude, let alone a full-blown debt default in Europe or a possible US recession.

Weak finances, persistently high inflation and policy inertia have considerably weakened the government's position today.

"This time our basics are weak. A domestic meltdown is expected and our resilience won't be as much as last time," said Nisha Taneja, professor of economics at ICRIER. Growth estimates are down to 7.2% in the current year, not far from 6.8% the country managed in crisis-ridden 2008-09, and every other indicator is pointing downwards.

Contrast that with 9.3% growth on the eve of the crisis when India could do no wrong. "This time we may be on weaker foundations," chief economic advisor Kaushik Basu told Washington Post last week. Just before the crisis in 2008, the repo rate, the key rate in the economy, was 9%, which was cut quickly to stimulate demand and investments. This time round the best the Reserve Bank can do is to halt the rate increases because despite high borrowing costs consumption demand remains strong and any policy reversal risks inflation going out of hand.