The interest rates have gone up steadily. The manufacturing sector has slowed down. Grains are rotting, despite bountiful rains and it is still pre-harvest period. The Government is rudderless. There is a capital flight from the country. Despite all this, the GDP is growing at 7%.
This appears to be paradox. But is it?
The GDP is growing despite the Government. Post liberalization, the industry is less reliant on the Government, and the Government policies have little impact on the economy in the medium term. Or let us say it has only marginal impact. The industrial and services sector are self sufficient which leads to them contributing a bit to the GDP growth.
There is another reason. I had written about this before. Despite the real income coming down over the past couple of years, people are buying more because of the credit facility available -either as Bank loans or through Credit Cards. In effect, they are paying from the future income anticipated. Thus the money supply is much more than what it should be. It is a debt driven growth, which cannot be sustained. One has to just look at USA to know where we will end up.
In the past the debt entrapped only the Central and the State Governments. Now it is extended to you and me. Still doubtful? Try preparing a Balance Sheet on your personal Assets and Liabilities, and see where you stand.
