The Indian economy, which switched to an accelerated growth path in 1978-79, started sputtering in 1995-96, the Reserve Bank of India (RBI) said in its currency and finance report, released on Monday. The current slowdown, therefore, represents a "loss of speed" rather than a break in growth, it said.
In line with the report's central theme of "revitalising growth," the RBI has attempted to explore the genesis of the slowdown before embarking on any policy advice. The apex bank estimates three distinct growth cycles in the Indian economy in the period between 1970-2001. "The growth in GDP encountered the first break in 1981-82 followed by a second break in 1990-91," the report says. The first break, it says, followed after the second oil shock and a severe drought, and the second, after the balance of payments crisis following the Gulf War. But the fallout in either case was positive.
"The response to (the first) shock resulted in a step-up in the growth process with the trend growth rate rising from 3.4 per cent during 1970-81 to 5.6 per cent during 1981-90, "the report says, adding that "the simultaneous implementation of structural reform and stabilisation (after the second shock) brought about a quantum jump in the trend growth to 6.5 per cent in the ensuing years."
Although the RBI report finds no evidence of a trend break in the 1990s, it suggests that, beginning 1995-96, there was a "wearing off of the preceding high growth phases." This forms the bedrock of the apex bank's view that "current (slowdown) phase represents a loss of speed rather than a 'break' in growth."
Thus, in the RBI's analysis the seeds of the slowdown were sown in 1995-96 and the economy is now right in the middle of the aftermath.
But the RBI report says the Indian economy is now less susceptible to violent cyclical fluctuations than it was it in the 70s and 80s. During the 1970s and early 80s, cyclical fluctuations were frequent and sharp in magnitude, varying in the range of -3.6 per cent to 3.3 per cent, and emanating mainly from supply shocks such as agricultural failures, terms of trade shocks and war, the report says.
But in the 1990s, the amplitude of cyclical fluctuations became relatively smaller, varying in the range of -1.0 to 1.3 per cent.
