The Gold Standard  

Morgan Stanley’s Chetan Ahya’s post on Indian growth prospects post-elections is a good one. The summary looks harmless.

The recent period of strong global growth, which was premised on widening global imbalances, is over. Contraction in global growth has resulted in a major reversal in capital inflows into India and other major emerging markets. This, coupled with a sharp contraction in exports, has caused an unprecedented growth shock. The worst may now be behind us, and we do expect a gradual recovery from 2H09. However, investors’ focus will shift to the pace and strength of recovery. We believe that the weak global growth environment will affect the pace of recovery. Our economics team expects global GDP growth to recover to a tepid 2.7% in 2010, well below the average of 4.9% between 2004 and 2007 (a period of strong global growth). Moreover, India needs to pay back from its own credit cycle excesses and has limited flexibility to further increase its fiscal deficit. In this environment, we believe that a quick recovery to 7.5-8% GDP growth requires a stronger pace of structural reforms. [More here]

In my view, he gets it right. His conclusion is more benign than his analysis leads up to.