The second quarter of 2012 has been especially bad for two of the largest emerging economies, India and China, with both countries posting less than satisfactory GDP growth performances. China’s and India’s third quarter growth rates at 7.8% and 5.3% were not only way below last year’s performance, but were also below conservative internal estimates. Although the Euro Crisis has been taking the blame, analysts are predicting that growth is set to rebound in the third quarter of 2012 provided that active steps are taken by the government to fix fiscal and structural problems.

China has been shifting away from an export-led growth in recent years but domestic consumption has room to grow. According to HSBC bank, the Chinese government has been considering increasing credit to consumers and families by further reducing the Reserve Requirements. Policy makers have also been actively planning for strong fiscal measures to induce demand by cutting taxes and actively pursuing large scale national level projects in both the energy and public infrastructure sectors.

India on the other hand is currently figuring out what exactly it has done wrong since it now appears that problems in growth are not to do with the Euro Zone. Following a horrible second quarter report, the Indian finance minister Pranab Mukherjee has resigned and his portfolio has been taken by the Prime Minister, Manmohan Singh himself. The move intends to inspire confidence in the Indian economy as Manmohan Singh is considered the mastermind behind reforms in the 90’s that pushed India onto the global stage. As of now, India not only has to implement structural changes to their economy addressing issues such as subsidies, but it also has to control government spending that has contributed to a ballooning economic deficit. Foreign Direct Investment remains at an all time low and inefficient government bureaucracy and legislations threaten to be a barrier to development.   

Good news for both these economies is that commodity prices have been falling for the past several months which could go a long way in helping revive growth again. The Euro Zone crisis has also shown these economies the importance of promoting regional trade and encouraging consumer demand at home.  The bad second quarterly report has hopefully humbled these two powers and made them realize that growth cannot be sustained with static policies.