What's wrong with 6% GDP growth?

Five years (2003-08) of near-9% growth suddenly seems a distant memory. The CSO estimated GDP growth in October-December 2008 at just 5.3%.
Indeed, the IMF estimates that India will average just 5.1% growth in the calendar year 2009. There is much gloom and doom in the stock market, which has now fallen below its October-November lows. The government claims bravely that its stimulus packages are finally having an impact, but this is not reflected in the mood of corporates or households. Maybe growth in 2009 will be 6%, a tad higher than the IMF estimate. But it may not get much faster till the world economy recovers, and that may not happen till 2010 or even 2011. If so, India will grow at just 6% annually for the next two years. Some experts ask, what’s wrong with 6% growth? Why are we whining and groaning? After all, 6% growth will represent the fastest growth rate in the world after China’s. If India can grow at 6% when the US has just plunged downward by 6%, why not enjoy the spectacle? One consulting firm says that it scents trouble in only one of six verticals of its business. Why then is so much gloom and doom?
I personally believe that gloom is fully justified in the short run, but not a sense of doom. When a country moves up from 4% growth to 6%, this generates optimism and excited enthusiasm. But if growth falls from 9% to 6%, that is terribly painful. What matters is not just the rate of growth but its direction too. The mood of corporates, governments and households depends a lot on expectations. Keynes emphasised the critical role played by the animal spirits of entrepreneurs, who take risks, innovate and so accelerate growth. When the economy swings up, animal spirits bubble fiercely. But in a downswing, animal spirits droop. Risk taking is replaced by risk aversion, adventure by caution, and innovation by safety-first tactics. During the upswing of 2003-08, entrepreneurs were able to raise ever larger sums of equity at ever higher prices. They were also able to get ever larger loans at diminishing rates of interest, especially foreign currency loans. This explosive growth of cheap financing drove India’s 9% boom. Some economists argue that India’s own savings rate has shot up to 37%, and this is the main driver of growth. Not so. The sudden rise in India’s savings rate is cyclical in substantial measure, and will now swing down as corporate and government savings collapse. The earlier cyclical upswing was itself predicated on corporate access to cheap, plentiful capital. Today that access has become difficult and expensive. Leveraged takeovers, Tata Steel’s purchase of Corus, Tata Motors’ acquisition of Jaguar Land Rover, Hindalco’s purchase of Novellis, were once hailed as immense national triumphs. Today they look over-leveraged and overpriced disasters. Corporates with dollar loans now have to mark these to market, suffering huge losses.
Source: ET