To understand India’s economy, look beyond the spectacular growth numbers

livemint.com:

BENGALURU, India—India is set to be the world’s fastest-growing major economy this year, but economists say the country’s headline growth numbers don’t tell the whole story. The South Asian nation’s gross domestic product grew at more than 8% this fiscal year compared with the previous year, driven by public spending on infrastructure, services growth, and an uptick in manufacturing. That would put India well ahead of China, which is growing at about 5%, and on track to hit Prime Minister Narendra Modi’s goal of becoming a developed nation by 2047.

But the way India calculates its gross domestic product can at times overstate the strength of growth, in part by underestimating the weakness in its massive informal economy. There are also other indicators, such as private consumption and investment, that are pointing to soft spots. Despite cuts to corporate taxes, companies don’t appear to be spending on expansions.

“If people were optimistic about the economy, they would invest more and consume more, neither of which is really happening," said Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics and former chief economic adviser to the Modi government. Private consumption, the biggest contributor to GDP, grew at 4% this fiscal year, still slower than pre-pandemic levels. What’s more, economists say, it could have been even weaker if the government hadn’t continued its extensive food-subsidy program that began during the pandemic.

The problem is driven in part by how India emerged from the pandemic. Big businesses and people who are employed in India’s formal economy are generally doing well, but most Indians are in the informal sector or agriculture, and many of them lost work. While