We asked the question: can the developing world maintain its economic growth in the teeth of a slowdown in the West. Signs point to no, as India’s story has changed significantly from what it was only a few months ago. WSJ:

Growth in India’s gross domestic product has averaged just shy of 9% for the past five years. It reached 9.6% in the fiscal year that ended March 31, 2007. The government forecasts that the economy grew 8.7% in the fiscal year that ended last month. But as the global slump and rising inflation take their toll, it is becoming clear that the rapid expansion was due in part to benign conditions that boosted emerging markets everywhere — and that India remains vulnerable to economic cycles. Some forecasters now say GDP may grow just 7% or a tad higher this year and maybe even next.

The difference between 7% and 9% expansion may not sound like much, especially when some countries, including the U.S., are struggling to show any growth at all. But it will make an important difference to India. “Seven percent is a good rate — it’s not stagnation — but India’s economy needs to grow at 9% to 10% for some years to wipe out the deficit of previous growth rates,” says Ashok Jha, a former finance secretary and now president of Hyundai Motor Co.’s Indian unit.

Expectations for growth are so high that anything less than a rip-roaring performance could stall the forward momentum of the recent expansion. A slowdown also would render India less able to take up the slack in the global economy caused by the problems in the U.S. and Europe. India has become a hot destination for U.S. goods. The U.S. Commerce Department says India as a market for U.S. exports is expanding at a rate of 75% a year…

employment grew 2.6% a year from fiscal 2000 to fiscal 2005. But the labor force grew by 2.8% over the same period. The result: The unemployment rate rose to 8.3% from 7.3% during the period. With growth slowing, India’s benchmark stock index is down 19% so far this year. Property prices are softening, too. Sales of scooters and motorbikes dropped by almost 8% in the 12 months that ended March 31, after climbing 11% the previous 12 months

Like China, India is fighting inflation, which is over 5%, but it already has softening sales and a high unemployment rate. So India’s policy choices are not good, and definitely do not favor high growth now. Gee, maybe it’s not different this time after all.

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