India is growing fast; but is it the fastest?

Kya acchhe din aa gaye?

In the last few months, the World Bank and the IMF have already tagged India as the fastest-growing large economy. In a sense that is true if you look at FY23. There was no large economy that was even close to India’s rate of growth and FY24 is expected to be a repeat. Of course, we are only looking at economies with a GDP of more than $1 trillion to avoid the risk of comparing apples with oranges. While that is a confidence booster, is it time to celebrate?

For instance, IMF has forecast a 5.9% growth for India in FY2023 and slightly better numbers in FY24. That is a far cry from the negative GDP growth in FY21. The bigger growth is whether India has been true to its potential? If you ignore the base effect and look at growth over 3 years' CAGR, India has grown at 3.1% since 2019. Real growth must now be at 8% to improve on this.

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Are these really the best of times?

Firstly, to get a clear picture, we may have to eliminate the base effect caused by the gyrations in the GDP over the last 3 years. Hence, a more cumulative growth over the last 4 years between 2019 and 2023 would be a better measure and more secular. This will eliminate the risk of giving too much weightage to growth on a low base.

If you apply a CAGR model, there is Ireland growing at 10.5% CAGR, Turkey at 6.2% CAGR, Taiwan at 4.1%, and China at 4.5% CAGR. In comparison, India has grown at 3.1%. While China is the second largest economy in the world and Turkey is a $1 trillion economy, Taiwan is close to $800 billion. Ireland is relatively smaller. The moral of the story is that looking at merely point-to-point growth can be misleading. CAGR over 4 years is a better measure.

India has to focus on demographic dividends urgently

Recently, India surpassed China to become the most populated nation in the world. China’s population grew much before India, but they also made the best of their vast pool of young workers. For India, the demographic dividends are evident since 2005, but it is only now that there is some serious effort on making the best of these dividends. For India, the two major challenges are to achieve nominal growth consistently in double digits with controlled inflation and improving the per capita income levels; which is where India really lags.

Real shift is happening at the grassroots

One can perennially debate about the pros and cons of growth and demographic dividends. But, the real growth story is never evident in the glossy research reports or the statistical analysis of IMF and World Bank. The real story is at the grassroots level, and that is where the positive change is actually happening in India. India is garnering encouraging interest from MNCs, keen to shift their production to India under the China Plus One policy. 

But the bigger shift at the policy level is that India is now willing and able to make long term bets. Its recent focus on emerging areas like artificial intelligence, green hydrogen, lithium cells etc is a sign that India is willing to put its money where it matters. This is somewhat like China buying up lithium and cobalt mines in Africa more than a decade earlier and they are reaping the gains now. It is this mindset shift that gives real hope.

CONTENT SOURCE: NSE AND NSDL