Thread by @shrikanth_krish

When we look back at Indian economic history since Independence, there is a tendency to bemoan the lost opportunities, the statist policies and low growth rates

But we tend to overlook one remarkable success story - and that is the stability of the Indian economy

Read on

India is one of the most stable economies in the world, particularly among the developing countries, with extremely low standard deviation in economic growth rates as well as Inflation rates

In the 70 years since independence India has had just 2 steep recessions - one in 1965-66 and another during the late 70s (soon after the Emergency). Barring these two short recessions, the economy has grown every year with remarkably low standard deviation

Perhaps the greatest success story of Indian macro-economic management has been our monetary policy. The RBI has to rank among the best central banks in the world if low standard deviation of inflation rate were the benchmark

Here are the inflation rates in India since the 1950s

The inflation rate in the consumer price index (comprising of goods of regular non-discretionary consumption) has exceeded 10% in the past 60 years on just 13 occasions, never exceeding 25.4%

While there are other countries that may not have had a very high inflation rate on an average, what marks India out among developing countries, is its low standard deviation

What makes Inflation a pain is not its absolute level but its unpredictability

Indian inflation rate has been quite predictable. The credit in large part must go to the RBI. As Milton Friedman once said, consistently high inflaton is always a monetary phenomenon

The M3 growth curve below shows how predictable and consistent monetary policy has been

To contrast the Indian consistency in business cycle stabilization and inflation management, let's compare India with two other developing countries - Brazil and Russia.

The Brazilian inflation rates have exceeded 100% in 12 years since 1981 and 1000% on 4 occasions in the past 4 decades

Source: inflation.eu

Russian inflation rates since the collapse of the Soviet Union have exceeded 100% on 3 occasions

Source: inflation.eu

Let's take the business cycle management of another developing country - Argentina. The country has had atleast 9 recessions since the mid 90s as shown here

Source: www.tradingeconomics

The macro-economic stability of India is all the more remarkable given that we have a relatively free economy with a flexible exchange rate unlike China for much of its history

While a lot can be critiqued about Indian long term economic policy, our policy makers have usually not screwed up when it comes to short term business cycle management and managing economic volatility.

We seldom ever screw up royally

Sources for data -

GDP growth rate timeseries : tradingeconomics.com
Inflation rates : inflation.eu
M3 time series : quandl.com