India's economy: not as bad as it looks?

India's stock market has lost 20 percent since last November and financial analysts and investors are growing increasingly cautious, but the country's economic rulers insist there is nothing to worry about.

Asia’s third-largest economy managed to weather the downturn of 2008 better than most, based on its robust domestic market. But since then, India has suffered some jolts, such as galloping inflation, a downgrading of its growth forecast, a string of corruption scandals that undermined its credibility, and resulting delays in government decision making.

"I think the mood now is worse than the ground reality warrants," says chief economic adviser to the Indian government, Kaushik Basu. "Yes the Indian economy will probably grow not quite as fast as we were expecting this year. But even if India grows at 8 percent, it will be among the five or six fastest growing countries in the world."

Still for India, a country that was hailed as an emerging powerhouse based on growth rates as high as 9 percent before the credit crunch of in 2008 saw growth plunge to 6.8 percent, the fact that the country has joined much of the rest of the world in experiencing the economic downturn has shaken investor confidence.

Dr. Basu insists it's not as bad as is may seem. There are a few factors indicating that things will turn around, he says, such as the fact that Indians save and invest almost a third of the national income. "That's a level seen by South Korea, Taiwan, Singapore, at the height of their rapid growths. It's the kind of figure you would see in those remarkably performing East Asian countries through the ‘80s and ‘90s. That India would ever be saving and investing as heavily was unthinkable just 15 years ago." Other factors include strong exports, and indications that foreign direct investment is on the upswing.

Candid on India's corruption

If something were to seriously threaten India's growth, by scaring away investors, say observers, it is corruption.

Basu is on sabbatical from his post as professor of economics at New York state's Cornell University for a two-year stint advising the Indian government on how to best frame policy to meet the needs of its 1.2 billion people. As a result he can afford to be candid on the hot topic of corruption.

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