Indian economy thesedays is characterized by a quiet revolution - growing investments, growing confidence and growing aspirations. There is - almost as a byproduct - much talk of an asset bubble. A friend of mine summarized the underlying feeling behind this bubble to me the other day - "I feel uncomfortable with the slope of growth curve". This to me seems the primary driver of the perception of the so called asset bubble in India today.
Nobody is quite keen on examining the fundamentals. And of course with selective perceptions there are always events to justify one's stance. My personal observation is that the talk of bubble is stemming from the inability of most Indians to deal with their country's potential. It is the inherent discomfort with non-linear growth however robust it is. One such Indian also happens to be the governor of the reserve bank and has used his power to revise downwards what has been a fairly robust growth story.
There has always been much of comparison between india and china. A key difference often cited is the difference in the governance model. In addition to that, i believe there is a deep rooted difference of attitude. Chinese attained 10% growth sustainably over the decade partly on account of the reforms, partly FDI and partly the sheer confidence to bulldoze growth through resistance to it. Indian policy makers on the other hand get fidgety if growth numbers start to look above their mental blocks. 9% is enough, now let us focus on inflation instead - is the wisdom. Very counterintuitive to me. India has tried the license permit raj for long enough to know that growth is the starting point of any hope for elevating millions of its populace out of poverty. The desperation to control inflation looks more politically driven than by sound and ambitious policy making. India was just poised to break free of the lower orbit growth rate of 6-7% and move to a much useful 10%. But 1% too much inflation was enough to rattle our policymakers into slamming the brakes on a decently accelerating car. Cowardly by a long shot.
The issue is that the growth impact takes much too long to show its benefits while inflation bites much earlier. And makes politicians lose elections as well. I would not be surprised if the real wages have indeed remained constant and have in fact gone up during last three years. If that be the case, who is really worried about inflation - especially if it is tiny 1% more than the "comfort zone" - much arbitrarily defined. Agreed, too much of inflation redistributes wealth - typically against the poor. But reducing growth is making everyone pay as much or more price. It is the age old mantra of keeping everyone poor in a bid to increasing equality. I do not care much about equality. I worry more about the absolute standard of living of the poor. If that is above say Rs. 5,000 per month per person, I am ok with there being a hoard of rich who are getting richer.
Indians can be blamed for complacence - especially now when they should have demanded much stronger reasons (than inflation control by 1%) for putting unnecessary and counterproductive brakes to the economic growth.
8% is good enough for us. 9% is a bonus. 10% is probably too much. Here is where Chinese differ. I presume their policy makers would be saying, anything below 10% is underperformance. It really boils down to the attitude. If you do not feel like growing at 10%, you probably never will. The issue is that the ultimate price for your suboptimal attitude is paid by the millions of unemployed or underemployed who could not find enough work in your low inflation economy!
We have cheaper food, but no money to buy it - problem solved.