This year's estimated 9.2 per cent growth is particularly impressive as this is despite agricultural growth decelerating from 6 per cent to 2.7 per cent, and this has been more than made up by manufacturing and services.

This has lead to a spate of somewhat euphoric predictions about India breaking into the ranks of lower middle income countries, catching up with China and surpassing it.

While the constraints of a fractured polity, tottering infrastructure, exasperating bureaucracy, and rigid labour markets are not overlooked, an important dimension of economic performance (volatility of growth) is. If growth acceleration is accompanied by greater volatility, the welfare gains may well be limited.

Considering that growth trajectories are seldom smooth - mainly because policy reversals are not uncommon, economic activities are often disrupted, prices fluctuate, and capital flows change course - and individuals are risk-averse, there is a divergence between average growth rates and corresponding certainty-equivalent rates.

If the latter are lower, as is generally the case, volatility reduces welfare for a given degree of risk aversion. A recent study, based on a cross-country analysis, sheds light on whether volatility of growth rates has increased in recent years and the underlying factors (Gaiha, R. and G. Thapa (2006) Growth, Volatility and Inflation - A Cross-Country Analysis, Rome: PI, IFAD).

• Over 1985-94, the GDP per capita growth rate was considerably higher in east Asia relative to that in south Asia.
• In both sub-regions, the certainty-equivalent growth rates were slightly lower than the average over this period.
• While both sub-regions recorded deceleration of average growth rates over 1995-2004, it was sharper in East Asia. A similar pattern is revealed by certainty-equivalent growth rates. The sharper deceleration was in part due to the financial crisis which erupted in 1997.
• Volatility of growth rates was slightly lower in East Asia relative to that in south Asia during 1985-94. It rose in the former during 1995-2004 but declined in the latter. These are of course averages.
• To assess the determinants of volatility, however, we need to examine the individual effects of various structural characteristics and other, essentially, time-related changes. In the complete sample over the period 1985-2004:
• Volatility varied with the level of per capita income in 2000 - the higher the (initial) income, the greater was the growth rate volatility.
• Volatility also varied with trade share. So with rapid integration of markets across national frontiers, volatility is likely to increase.

However, the higher the share of agriculture, the lower was the volatility.

Finally, controlling for these and other effects, the volatility decreased in the period 1995-2004.

Consider the simulations for India and China.

• A 5 per cent higher (initial) income is associated with a 1.11 per cent greater income growth volatility in India, and 0.76 per cent higher volatility in China.
• A 5 per cent higher (initial) trade share would result in a larger increase in growth volatility in India (4.51 per cent as against 2.82 percent in China).
• Higher trade share, however, has a deflationary effect. With a 5 per cent higher trade share, food price inflation is lower by 1 per cent in India, and by about 5 per cent in China. With a larger trade share (an increase of 10 per cent), food price inflation is lower by 2 per cent in India, and by 9.70 per cent in China.
• A 5 per cent lower (initial) share of agriculture in GDP would lead to an increase of over 30 per cent in growth volatility in India and of about 8 per cent in China.

In conclusion, the trade-offs between growth and volatility matter but run the risk of being submerged in bouts of euphoria over growth acceleration.