India is the world’s fastest growing big economy, but it can do better

Industrial growth in India is still lukewarm.
Industrial growth in India is still lukewarm.
Image: Reuters/Anindito Mukherjee
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India’s economy grew at 7.6% in the year ended March, making the South Asian giant the fastest-growing large economy in the world.

Annual growth was boosted by low oil prices, which have helped Asia’s third-largest economy save billions of dollars on oil imports. India imports two-thirds of its oil.

And consumers are spending more thanks to recent interest rate cuts by Reserve Bank of India governor Raghuram Rajan.

Agriculture is seeing a slow revival after two recent droughts, as a good monsoon this year could add momentum to the rural economy.

Still, there’s more work to be done. In April, India’s exports fell for the seventeenth consecutive month. Low export growth will pull down manufacturing activity in the country.

Private investment hasn’t really picked up either. Indian factories are lying under-utilised—operating at almost 30% lower than their full capacity—and capital expenditure is concentrated in only a few sectors like roads, renewables, telecom, and fertilisers, which have seen some push from the government.

And there’s little need to invest in new plants, as industrial production remains weak. In March, the index of industrial production (IIP) grew a negligible 0.1%. Compared to other fast-growing economies, Indian industrial output is weaker than the GDP number would suggest, as pointed out by Harsha Jethmalani in the Mint newspaper.

This discontinuity only adds to the skepticism surrounding India’s statistical overhaul of its GDP accounting in 2015. That change almost magically transformed the economy from one that appeared stagnant into one that is ranked among the world’s peppiest.

“Another set of remarkably strong GDP data will do little to dispel doubts about the quality of the official national accounts numbers,” Shilan Shah, India economist at Capital Economics, told CNN, of the latest update on GDP.

Even Rajan has questioned the accuracy of the data, citing issues with double counting. ”There are problems with the way we count GDP which is why we need to be careful sometimes just talking about growth,” Rajan said in January this year.

That’s something to bear in mind, as India celebrates an apparently world-beating economic performance.