Raj Krishna was a Professor at the famous Delhi School of Economics who specialised in agricultural economics. He is, however, remembered most for his phrase, “Hindu rate of growth”, which was used to describe the GDP growth rate that prevailed post-Independence till the beginning of the 1980s. One can never know what was so “Hindu” about a growth rate of 3-3.5 per cent growth rate. Hinduism is definitely the most open and progressive religion, and cannot be termed as stagnant. If the reference was to a fatalistic tolerance of the status-quo, the phrase still doesn’t work. It would be best to expunge it from our lexicon.
A statement by a former Governor of the RBI, that India is “dangerously close” to the Hindu rate of growth, has probably been made loosely and can be interpreted more as a reversion to a low stagnant growth rate. But is there any basis for such a view?
First, it is true that growth has slowed down in India from 9.1 per cent in FY22 to 7 per cent in FY23. This is natural as the base effect has played havoc with numbers across the world. Covid caused the growth rate to decline by 5.8 per cent in FY21 and hence, the growth of 9.1 per cent had the advantage of a low base. The economy has done very well through these two opposite tendencies to grow by 7 per cent in FY23. In 2022, India was the fastest-growing economy in the world and this description will hold also in 2023 (FY24). Therefore, to say that the Indian economy is stagnating is probably not justified.
Second, in this context, it is necessary to also look at what is happening in the world. All developing economies will be slowing down in 2023 except China and Thailand, according to the IMF. China had followed the “zero Covid” policy in 2022, which caused growth to be subdued at 3.2 per cent this year, and with opening up of the economy will generate growth of 4.4 per cent in 2023. Thailand is a much smaller economy and will grow at 3.7 per cent compared with 2.8 per cent in 2022. All the developing economies will be growing at a lower rate compared with 2022. Germany and Italy will be registering marginal negative growth rates this year. Going by IMF projections, India’s growth of 6.1 per cent in 2023 will be the highest, with the next highest numbers coming from Indonesia and the Philippines with 5 per cent each and China with 4.4 per cent. Against this background, to argue that the Indian economy is sliding back to the growth rate of the 1980s is just not right.
Third, purely from the quality perspective, the Indian economy today closely resembles the top developed economies – the US, Japan, the UK and Germany. India is home to global brands, and there is acceptance even from the sceptics of the Indian growth story. One no longer needs to go to Dubai to shop for any product as everything is available at a better price throughout India. The faith shown by foreign investors in the form of FDI has been remarkable. The progress made in elevating the lives of the people has been continuous and the structure of the economy is continually evolving.
Fourth, the quarterly growth numbers that were announced along with the GDP growth estimate of 7 per cent for the year have been selectively taken out and magnified to drive home the point that there is something amiss in the economy. When the first advance estimate of 7 per cent growth was released in January, it was known that the third and fourth quarters would have low growth rates in the region of 4.2-4.5 per cent. The RBI had already put it down that its estimate of 6.8 per cent annual growth would have 4.4 per cent and 4.2 per cent respectively for these two quarters. Hence to suddenly pick up the 4.4 per cent number and push forth the argument of stagnation is misplaced.
In fact, today, going by the official RBI GDP forecasts for FY24 – which is looking at a number of 6.4 per cent – the four quarterly growth rates are to be 7.8 per cent, 6.2 per cent, 6 per cent and 5.8 per cent respectively. Hence, it is hard to conceive of a 3.5 per cent number under these conditions. Besides, normally in economics one tends to look at quarterly or monthly data only if there is a trend. Quite clearly going by RBI data there is no such trend. Ideally, annual numbers make sense as they address seasonal issues and also tend to balance the base effects as they aggregate numbers of four quarters.
Therefore, the argument that India is reverting to a stagnant path is weak. Besides, if one looks at the pattern of growth in the last two decades an interesting picture can be seen. The US, Germany and the UK averaged growth of 2.5-2.8 per cent for the three years before the Lehman Brothers crisis in 2008 and 2009. From 2010 to 2019, before the pandemic, growth averaged 2-2.3 per cent while for 2022 and 2023 it will average 0.6-1.9 per cent. This means that growth has been coming down continuously. Would this now be called the “American rate of growth” or “British rate of growth’? China came down from 12.8 per cent pre-Lehman to 7.7 per cent for the decade ending pre-covid and would be 3.8 per cent for 2022 and 2023. Will this be the new “Chinese rate of growth”?
Clearly, when looking at a growth pattern, it is essential to look at the entire picture and not selected pieces. The global context is the starting point followed by the trends which have been witnessed in the global economy over time. Countries will never be able to maintain momentum all through the journey. The amplitudes of the slowdown have been rather elongated. Further, the quality of the economy has to be taken into account. Even while India grapples with challenges of investment and employment generation, given the size of the population as well as lacunae in infrastructure, India’s growth is typified by dynamism. Making comparisons with the 1980s is clearly out of order. There has been a structural transformation in every area of the economy and the numbers support this.
Sabnavis is the chief economist, Bank of Baroda, and author of Banking Trends and Controversies
Views are personal
