How India Can Sustain Rapid Economic Growth
Given its favorable demography, democratic polity, and large and diversified economy, India can in principle grow at 7% or higher for years to come. But the only route to such growth that remains open runs through structural reforms that the government has taken off the table.
NEW DELHI – One country stands out from the gloomy overall tone of the International Monetary Fund’s recent update of its World Economic Outlook. Against the backdrop of tepid 3.2% global growth in 2022, the IMF expects India’s GDP to expand by 7.4%. This is the fastest growth of any large economy except Saudi Arabia, which is the incidental beneficiary of upward pressure on global oil prices from Russian President Vladimir Putin’s war against Ukraine. India may be buying Russian crude at a discount, but, as the world’s third largest oil importer, it is still burdened by high oil prices.
One might quibble that India had an exceptionally difficult pandemic, so it now has exceptional scope for bouncing back. But other countries hit hard by COVID-19, such as Mexico, are not doing nearly as well. One might also note that, with India’s still-rapid rate of population growth, per capita incomes are rising more slowly than the aggregate GDP figures. But a population growth rate of 1% doesn’t fundamentally change the story.
India’s annual GDP growth in excess of 7% is in fact the continuation of an ongoing acceleration, from roughly 5.7% in the 1990s, to 6.2% from the turn of the century to the 2008 global financial crisis, and then to 6.9% from the crisis to the eve of the pandemic. The country has benefited from a buoyant tech sector, surprisingly robust agricultural productivity gains, and decent manufacturing growth. With the worst of the pandemic now behind it, the economy is firing on all cylinders.