With the combined central and state government fiscal deficit (even without counting the huge oil PSU under-recoveries) as well as the current account deficit at around the same levels as they were prior to the 1991 crisis,its difficult to see how India can possibly reach the place Goldman Sachs ordained was Indias to take a little over a decade ago. Indeed,after the first Dreaming with BRICS report which said India would overtake the US (in real dollar GDP,not PPP) a little after 2050,Goldman Sachs had another look at the numbers a few years later and said India would beat the US before 2050its per capita income,though,would be around a fourth. It would then,after China,be the worlds largest economy in 2050. A new report by Knight Frank,The Wealth Report 2012,outdoes Goldman and projects India will overtake China and be the worlds largest economy by 2050!
Hardly surprising then,that the government should be getting so complacent. Its pretty obvious to most that Indias growth has fallen,and will continue to fall,because its savings levels have fallen,and these cannot be raised until the public sector deficit turns into a surplus. This means cuts in expenditure,removal of oil subsidies,and the like. As opposed to this,once the Food Security Bill is passed,later this year or by the next Budget,public deficits will shoot up dramatically. While the next 1991-type crisis looms,a puffed-up government has no compunctions in coming up with retrospective tax amendments designed to frighten away investors. Theyll come back,it says: after all,India is going to be the largest economy in the world by 2050. Bit of circular reasoning thereIndia will be the largest economy only if the investors continue to pour inbut try telling the government that. Goldman Sachs seems to be having a rethink,if only Knight would start getting frank.