Ten years after Goldman Sachs’ “BRIC” report, most emerging economies have performed poorly in 2011, with India being the worst performer in its peer group. (Russia’s economy continues to run on high petroleum prices.) The collapse of the Indian stock market, as shown in Table 1, is the most visible indicator of a new lack of confidence. The Bombay Stock Exchange’s market capitalisation fell by a shocking 38 per cent this year, much more than the markets in comparable countries, showing that the India story in particular seems to have turned sour.
The rupee, as shown in Table 2, has done poorly as well. It has lost more value against the US dollar than any other Asian country. The South African rand has done as badly, mainly because that country’s current account deficit has increased precipitously. As shown in Table 4, however, India is not far behind, with a current account deficit estimated at 3.5 per cent of GDP, poor by any standards.
Populist policy shows up in the poor numbers for government spending and expenditure, too. All emerging countries are running deficits, but, as is shown in Table 3, the Indian budget deficit has made a mockery of the government’s stated commitment to fiscal prudence. It is at 5.4 per cent of GDP, a very worrying figure — and, unlike in South Africa, there are few hopes of bringing it down sharply enough.
The pressure of inflation could well mean that the government will feel itself obliged to keep populist schemes going. While inflation everywhere has increased, as Table 5 clearly shows, inflation in India has been the most enduringly high. But most shocking compared to its peers is the collapse of India’s industrial production (Table 6), indicating that a recovery in GDP growth (Table 7) is out of the question. (Click here for the graphs)
