Is India’s slowdown structural or cyclical? It depends on your expectations.
Subscribe to enjoy similar stories. India needs sustained long-term growth to pull people out of poverty, create jobs for the young, and boost incomes to widen the consumption base. I have long considered India’s potential real GDP growth rate to be 6% to 6.5% (6.2% is the average since 1980).
This pace of growth, though twice that of global GDP, may not be enough to achieve India’s aspirations of becoming a middle-income country and creating meaningful jobs for its youth. Can India sustain more than 7% growth over a long period? In the past, the answer to this question would have depended on when it was asked: My long-term assumption of 6% to 6.5% real GDP growth comes from a very simple analysis. Assuming India’s gross domestic savings (GDS) of around 30% of GDP and the incremental capital-output ratio (ICOR) - the capital required to get a unit of growth) of around 5, the potential growth (GDS/ICOR) works out to 6%.
Negative aspects such as inefficiency in the government sector and household savings are balanced by positives such as attracting excess foreign savings into India. Also read: India trips China for top position in emerging markets ranking in December Technically, India should be growing faster than this. Efficiency is improving (India’s ICOR is lower), Indians are saving more in risk assets, and the country is attracting capital through foreign direct investments (FDI), foreign portfolio investments (FPI), foreign borrowings, and from the Indian diaspora through remittances and deposits.
However, these have not resulted in sustained growth above 7%. For the September 2024 quarter, year-on-year growth rates were as follows: real GVA at 5.6%, real GDP at 5.36%, and nominal GDP at 8.04%. This represents a
. Read more on livemint.com
