India's rapid expansion might be hard to sustain.

Author:admin Views:119 2019-06-27 20:03
Almost two years ago Arvind Subramanian, then India's chief economic adviser, published a little-noticed passage in the finance ministry's annual economic survey.
 
The previous two years posed a "puzzle", he wrote.
 
India had reported miracle growth in GDP (averaging 7.5%) despite miserable growth in investment, exports and credit.
 
He looked for comparable examples elsewhere since 1991. He found none.
 
No country had grown faster than 7% in such circumstances. None, in fact, had grown faster than 5%.
 
India's rapid expansion, he warned, might be hard to sustain.
 
Or, indeed, hard to believe. Mr Subramanian's official position meant he could not say that loudly then.
 
But he is saying it now. In a paper published by Harvard University, where he is a visiting fellow, he argues that India's growth figures have been greatly overstated.
 
From the 2011-12 fiscal year to 2016-17, its economy officially expanded by about 7% a year, eventually outpacing China's to become the fastest-growing big economy.
 
That boast has helped entice over $350bn of foreign investment in the past seven years.
 
But India's true growth, Mr Subramanian thinks, is more like 4.5%.
 
Rather than outperforming China, India has underperformed Indonesia.
 
His paper starts by reporting a variety of indicators that have slowed sharply since 2011-12, even as growth has remained steady.
 
He then tries to measure the size of the problem. Looking at more than 70 countries from 2002 to 2016, he estimates the typical relationship between GDP growth and four other indicators: the growth of credit, exports, imports and electricity.
 
Before 2011 that relationship also held in India. But after it, India became an outlier.
 
Its reported growth was over 7%, even as the weakness of imports, exports and credit suggested growth closer to 4.5%.