Aiming beyond 7% growth

India is not the world's fastest-growing economy yet, but a revival of the animal spirits could propel it into that position

- AJAY CHHIBBER

India's gross domestic product (GDP) growth is now projected to be around 6.5 per cent for the financial year 2023-24, after recording 7 per cent in 2022. This is commendable, given global headwinds. The economy recovered sharply in 2021, growing by 9.1 per cent after a huge drop of (-) 5.8 per cent in 2020.

Where will it go over the medium-term? If India's GDP continues to grow at 6.5 per cent on a sustained basis, it will become the third-largest economy soon. However, it is noteworthy that, on a per capita basis, it will remain a lower-middle income country well past 2030. Official statistics show that India's GDP grew at around 6.8 per cent from 2001 to 2010, and then at 6.4 per cent from 2011 to 2019. During both periods, there were spikes in the GDP rate above 8 per cent, but were episodic and not sustained.

India's economy has grown more slowly than that of China and even Vietnam (see charts on the right) but it has done better than Indonesia, another large Asian economy. These rankings are more pronounced if we look at GDP per capita growth rates due to their slower population growth. India is no slouch, but it is not the world's fastest-growing economy yet, as some people claim.

Can India grow faster at 7-8 per cent and attain upper- middle-income status by 2030, paving the way to an advanced economy by 2047, and rightfully become the world's fastest-growing economy? Some commentators incorrectly argue that India's growth, unlike China's, is led by consumption. Even if consumption drives growth for a year or so, sustained growth requires exports and investment, leading to employment, which, in turn, results in higher consumption. India saw a surge in private corporate investment in the period 2002-2008 (see chart below), but it then declined sharply, by over 10 per cent of GDP.