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India’s remarkably robust and resilient growth story

Poonam Gupta's picture

India has achieved much in the last decades. Yet an economic deceleration in the past few quarters has generated worried commentaries about India’s growth potential.  However, our analysis of nearly five decades of data finds that India’s long-term growth process is steady, stable, diversified and resilient. Does this lay the groundwork for a more sustained 8% growth in the future? Yes, possibly, but more is needed. Let us elaborate.

First, India’s long-term economic growth has steadily accelerated over a fifty-year period, without any prolonged reversals. Thus, while growth averaged 4.4 percent a year during the 1970s and 1980s, it accelerated to 5.5 percent during the 1990s-early 2000s, and further to 7.1 percent in the past one decade. The acceleration of growth is evident not just for aggregate GDP, but even more strongly for per capita GDP. The average pace of per capita growth was 5.5 percent a year in the last decade. Interestingly, when compared with some of the world’s largest emerging economies, this steady acceleration of growth stands out as being unique to India.

Second, India’s rate of growth has become more stable. This is partly due to the stabilization of growth within each sector – agriculture, industry and services – and partly to the transition of the economy toward the services sector, where growth is more stable. Particularly interesting is the sharp increase in the stability of GDP growth since 1991. Before this, growth accelerated episodically, was punctuated by large annual variations, and often failed to sustain. Thus, growth has not just accelerated post liberalisation, it has also become more stable.

Third, growth has been broadly diversified. Growth has accelerated the fastest in services, followed by industry, and less so in agriculture. Over the long run, India’s growth has been driven by an increasing share of investment and exports, with a large contribution from consumption. Growth has also been characterized by productivity gains – both in labor productivity as well as in total factor productivity.

Finally, growth has been broadly resilient to shocks, both domestic and external. The resilience of India’s growth can be attributed to the country’s large and spatially diversified economy, as well as to its diversified production structure that is not dependent on a few products, commodities, or natural resources. It can also be attributed to India’s diversified trade basket and broad range of trading partners, wherein a slowdown in any one part of the world will not result in a large impact on India.



The resilience of India’s growth process was on display in recent years when the country recovered quickly from the impacts of two major policy events – demonetization and the implementation of the Goods and Services Tax (GST), an important indirect tax reform. We argue that the deceleration to growth rates below 7 percent between Q3 2016–17 and Q2 2017–18 was an aberration, attributed to temporary disruptions in economic activity as the economy adjusted to demonetization and businesses prepared for the implementation of GST. At present, there are indications that the economy has bottomed out and, in the coming quarters, economic activity should revert to the trend growth rate of about 7.5 percent. We project GDP growth to be 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent respectively in 2018-19 and 2019-20.

Fiscal Transparency in the Arab World: Where is the money going?

Renaud Seligmann's picture


Continuing the dialogue and peer-to-peer exchange on the benefits and challenges to fiscal transparency is essential to sustaining the momentum for reform. The time for action is now — the Arab world has a chance to go from lagging to leading on fiscal transparency.

How long is the long run?

David Evans's picture

When John Maynard Keynes wrote that “In the long run we are all dead,” he probably didn’t mean a few days or months, notwithstanding a recent “long-term experimental” social psychology study that shows results over a whopping three days. Keynes lived an additional 23 years after publishing his famous statement, so I’ll call 23 years the “Keynes test” for long-run impacts.

In development economics, how long is the long run? I identified every article in three development economics journals that used the term “long run” in its title. The journals were the Journal of Development Economics, Economic Development and Cultural Change, and the World Bank Economic Review. 38 articles used the term – excluding two book reviews, of which 23 articles had empirical analysis. (It’s easy to talk about long run impacts when you’re only speaking theoretically.) Of those 23, 10 were micro and 13 were macro. So this is a small sample. Proceed with caution!

Interest rate caps: The theory and the practice

Aurora Ferrari's picture

Ceilings on lending rates remain a widely-used instrument in many EMDEs as well as developed economies. The economic and political rationale for putting ceilings on lending rates is to protect consumers from usury or to make credit cheaper and more accessible. Our recent working paper shows that at least 76 countries around the world, representing more than 80% of global GDP and global financial assets, impose some restrictions on lending rates. These countries are not clustered in specific regions or income groups, but spread across all geographic and income dimensions.

Transitional Justice, the Rule of Law, and Conflict Recurrence

Leigh A. Payne's picture



Following periods of violent conflict, states often dedicate significant energy, time, and funding to a variety of endeavors broadly aimed at improving the rule of law. These include pursuing prosecutions or legally enacted amnesties to address past human rights violations; revising constitutions to expand human rights protections; undertaking reparatory and truth-seeking processes; and creating national human rights institutions and ombuds offices to monitor future human rights violations. Existing research, however, has not fully assessed whether these endeavors have any payoff in terms of preventing further violent conflict.

Breaking the vicious cycle of high inequality and slow job creation

Sébastien Dessus's picture
Keneuwe Monakale testing water quality at the pre-brew plant. The Alrode Brewery. Johannesburg South Africa. 23rd April 2008. The brewery is the largest in South africa. It produces 1,9 Million litres of per per day. The brewery employs some 900 fulltime and contract staff. Photo: Media Club/FlickR

Growth is picking up in South Africa, and this is good news after two years of declining incomes per capita. Observers are revising their forecasts, and optimists foresee economic growth to exceed 2% in next years. In recent months, several events have indeed improved South Africa’s economic outlook: the smooth transition in power, the authorities’ reaffirmed adherence to principles of good governance and debt stability, and the upward revision in national accounts, revealing higher economic activity in 2017 than previously measured.

It’s time to improve the ‘Value for Money’ toolkit, and not junk it

Suvojit Chattopadhyay's picture

 Julio Pantoja / World BankThe ‘results agenda’ of donor agencies have inspired several heated debates. Value for money is one of the main tools that helps further this agenda. There is significant pressure on donor development agencies to ‘demonstrate’ what they have achieved (results), and further, examine whether these results have been achieved in a cost-effective manner (‘value for money’). This pressure to demonstrate ‘value for money’ often leads to plenty of frustration, as those designing and implementing aid programmes struggle to strike a balance between what is easy to prove versus the complex nature of an intervention designed to tackle a real-world problem.

There are several problems with the results agenda – development interventions take place in a wide range of contexts, that lend themselves to comparisons on some counts and not, on others. These contexts change every day, and certainly over the lifetime of a development project, and attempting a grand theory or mathematical formulae to capture the entire process is nearly impossible.

Besides technical problems, there are valid fears that focusing too closely on ‘value for money’ will lead development workers to focus on ‘bean-counting’ and preferring interventions that can be easily measured and whose costs and benefits are easy to estimate. Some researchers have gone further and argued that an obsession with such metrics essentially forces development workers into lying about how their projects actually work.

Living fragility – It is not a choice!

Raneen Hasuna's picture



It was around this time a year ago, when I gave away the keys of my newly renovated apartment back to its owner. After having lived in the U.S. for more than 12 years, I had decided to return home, to Jerusalem. I packed my belongings in a rush, afraid that the more I stay, the more time I would have to think about it and never leave.  

Keep up with the latest trends on PPPs

Clive Harris's picture


Photo: ispyfriend / iStock

It seems like every week there are new reports being published about public-private partnerships (PPPs) by different organizations around the world. How can you keep track of what’s new and what’s relevant for your work?
 
With over 4,000 documents on PPPs in seven different languages (English, Spanish, French, Portuguese, Arabic, Russian, and Chinese) in its searchable document library, the PPP Knowledge Lab has become a key resource for the PPP community to keep up to date with the latest on PPPs. 

What’s been trending over the last quarter on the PPP Knowledge Lab?

Finance ministers should step up efforts for climate action

Petteri Orpo's picture
Photo: Mariano Mantel/Flickr

By Petteri Orpo, Minister for Finance, Finland 

Climate change already has many negative impacts with wide-ranging effects. According to the International Monetary Fund (IMF), global warming is significantly slowing economic growth in African countries while the population is growing rapidly. Climate change increases poverty and conflicts, as well as migration pressure.

It’s time to act. In terms of scale, the solution to the climate crisis is an exceptional challenge in the history of humankind. Emissions must be reduced quickly in all sectors of the economy.


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