15/02/2020
The term – GOLDILOCKS ECONOMY was fabricated by Dr. David Shulman in the early 1990s. Noticeably, the word “Goldilocks” is extracted from the children’s book, ‘Goldilocks and the Three Bears’. The concept of Goldilocks economy revolves around an economy that is not too hot that it causes overheating and inflation and nor too cold that it causes a recession. It is characterized by moderate growth rate and low inflation. It also portrays low unemployment, increasing asset prices, and low interest rate. Additionally, it allows for a market friendly monetary policy. It is a type of economy that is very investor friendly. Altogether, it is an idealistic economy. However, since it is subject to an economy’s external sector and business cycles, therefore, it is a temporary phase.
It is found by the National Council of Applied Economic Research (NCAER) that in the Indian context, the inclination is towards non-financial assets as opposed to the financial assets. In addition, even in the non-financial assets real estate dominates followed by durable goods and gold/bullion. RBI provided the data evidence of the steady rise in house prices during the past four-and-a half years and that house price inflation has now stabilized after it peaked during 2012-13.
Having shed light on some facts and figures, we are now in the position to answer the central question raised by the article. The answer to that question is a definite yes. The Indian Economy is clearly moving towards the so-called “Goldilocks Economy” period. All the numbers are bent in favor of the Indian Economy. Though the GDP growth rate as suggested by the definition of the Goldilocks economy is 2-3%, but in my view India is an exception to the rule. Since it is one of the
fastest growing and emerging market economy, we can take the gradual yet upward increase in the India’s GDP growth rate to be a signal of its forthcoming transition to the ideal phase. Adding to that, inflation has been controlled and is expected to fall further. As far as the asset prices are concerned, they also show an upward trend. This trend is here to stay. Interest rates were recently cut and are predicted to decrease further. Evidently, the behaviour of asset prices and interest rates is in conformation with the economic theory, i.e., asset prices and interest rates have an inverse relationship. Adding to that according to the economic survey 2016-17, RBI has shifted to an accommodative policy stance. With the stability and optimism on the political front of our country and many initiatives lined up like the Make in India initiative and more, India surely is emerging as a hub for investors all across the globe. However, there is still some uncertainty about the world economy.
Nevertheless, if everything plays out well, India can most certainly find its very own ‘Goldilocks economy’ period.
