India’s quest for high growth
It will have to address structural issues, unexpected disruptions
The National Statistical Office (NSO) will release GDP numbers for the December quarter at the end of this month. The official position, also reflected in the first advanced estimates for the overall performance in fiscal year 2019-20, has been that the economy bottomed out in the September quarter. The GDP growth in the September quarter was 4.5%, the lowest since March 2013. Unless there is a sustained acceleration in economic activity, the economy’s midterm challenges will only increase.
The best way to understand the importance of high growth is to use the example International Monetary Fund (IMF’s) first deputy managing director, David Lipton, gave in his CD Deshmukh Memorial Lecture last week. Mr Lipton cited IMF calculations on how long it would take India’s per capita GDP to reach half of the level of the United States. The answer depends on growth rates. “At an average of 9% growth a year, it would take 15 years. At 7%, that would be 19 years. But at 5% growth — just a bit over last year’s fourth quarter growth—it would be 23 years”, Mr Lipton said.Clearly, India must do all it can to ensure that our long-term growth remains as high as it can. However, in a globalised economy, external factors also influence a country’s growth performance. And India is no exception. The global economy has not been able to regain its mojo even a decade after the 2008 financial crisis. Protectionism in developed countries, manifested in things such as United States-China trade war and Brexit, is threatening to weaken tailwinds to economies of the global south from advanced country markets. Reconciling with effects of climate change and sharing costs of mitigating these effects is another big area of conflict.
Even as the world is struggling to come to terms with such structural challenges, there have been unanticipated disruptions. The coronavirus contagion in China is exactly that. While economists hope it will not lead to long-term damage, the spread of the epidemic can lead to supply chain disruptions and hit investor confidence. India cannot be complacent on the economic front, even if there is a short-term recovery.