Derek Scissors
Last week India announced GDP results for its fiscal year—it didn’t receive much attention. Outside India, there is a great deal of hype aimed at luring investors and boosting stock prices, not pesky facts. Inside India, most hype is about a future time when everything is great. The latter at least makes some sense: While India is growing fastest among large economies, it is also by far the poorest. This will remain true, indefinitely.
Fiscal 2023 real GDP growth was reported at 7.2 percent. This is slower than FY22, when recovery from the COVID shock began. Growth also slowed in the fourth quarter of FY23, at 6.1 percent, and is expected to be slower in FY24 than FY23. Nominal growth for the fiscal year was 16 percent, implying very fast inflation, which is now subsiding. In dollar terms, annual GDP was $3.3 trillion.
India is more dynamic than the rest of the seven largest national economies, whose 2022 growth ranged from 1.3 percent to 4.1 percent. Even with a faster pace, though, the increment to GDP is smaller than in the US or China, due to their larger size. For individuals, of course, the situation is more stark. India’s main personal income estimate rose not quite $300, China’s rose more than $400 in 2022, America’s rose $1200.
And the Indian trajectory is not ideal. Using GDP per capita, China was near India’s current level in the mid-2000s. At the time, it was in the midst of 23 consecutive years of GDP expanding faster than India’s FY23 performance, including double-digit gains in the years closest to current Indian per capita GDP. The world has changed, making fast growth more difficult. But math hasn’t changed: India is nowhere close to a new China.
One reason is that, while India government officials often look to the very long-term in their statements, they often don’t in their policies. Delhi puts the central deficit at 6.4 percent of GDP. (The 2022 US federal budget deficit was 5.5 percent of GDP). Why is the supposedly best performing major economy borrowing so much, when it should see balanced budgets or surpluses? No answer to this question bodes well for India becoming rich.
A better result: Investment led the economy in FY23, rather than India’s norm of consumption leading. Bank deposits to finance the investment accelerated. For this to be sustained, though, the country will need extremely large amounts of capital. Foreign direct investment declined sharply in FY23, due more to global than Indian factors but in any case far below what would meaningfully assist durable investment-led growth.
Export gains badly trailed nominal GDP. India’s weak competitiveness despite low wages—goods exports are one-eighth China’s—stems from reform failures. Private land ownership is constantly contested due to still-weak property rights. Firms with just 300 employees, or even just 100, can’t fire anyone without government approval, so they don’t hire and labor force participation is low. State-owned banks dominate finance. The policy mix says timid, not take-off.
India’s well-known demographic advantages make now the time for a boom. Its relative poverty calls out for one. But there was no boom in FY23 and there won’t be in FY24 or FY25. There’s always an external problem to blame. In fact, Indian politicians themselves may not truly want fast economic growth, as it would require disruptive policy changes. Why risk those, when things are okay and you can keep pretending that, someday, magic will happen?
No comments:
Post a Comment