Wednesday, February 13, 2008

Economists, can you explain why this is good news?

According to this BBC Article:
The Indian government recently said it expected the economy to grow by 8.7% in the financial year to the end of March, which would be the slowest rate of expansion in three years.

The government has raised interest rates and reduced the amount of money banks can lend out to cool the industrial and financial sectors. The government is also predicting a slowdown in agricultural output.

Analysts broadly welcomed the latest figure, as it shows government efforts to slow breakneck economic growth are continuing to be successful.


What are the benefits of slowing India's economy down? Especially the agricultural sector? Any ideas?

2 Comments:

Anonymous Anonymous said...

if you economy is growing too fast it can lead to sloppy business (see US mortgages). you want slow sustained since any downturns will hurt less, and you make sure that you are building for long term not just a quick buck.

August 7, 2008 2:30 AM  
Anonymous Anonymous said...

The Indian government fully wants high economic growth.

Interest rate increases have a goal of reducing inflation and 'bubble' tendencies. In this case, a slight slow-down seems preferable to continued rapid growth followed by a harder crash and a longer period of readjustment.

(On a side note, because of the way the (federal) government funds itself, interest rate increases might help it bolster its finances, although I doubt that's connected at all.)

The 'agricultural slowdown' predicted isn't a policy goal, and I am not sure that the agricultural sector did/will slow down.

Vivek AP

August 8, 2008 9:11 PM  

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