TRUTH ABOUT INDIA’S FASTEST GROWTH
Vishu Menon
Moody’s certifies it. Professor Jeffrey Sachs repeats it in every speech he makes to taunt his bête noire Donald Trump.: India is the fastest growing economy.
What is meant by the fastest growing economy? Growing 2% faster on a low base economy that cannot sustain 70% of its population without free ration?
No Award for higher growth rate with low base
Let us begin this piece in the glorious tradition of Einstein with what he used to call a thought experiment.
Let us say Naren and Jin Bang are fellow students in Delhi School of Economics. In the first semester, Naren gets 20 marks in economics and Jin Bang gets 90. Not to be outdone, Naren delivers enough rhetoric to impress the examiners and gets 30 marks in the 2nd semester. He goes to town celebrating his 50% {(30-20)/20 )} progress. Jin is awarded a 100, but is quiet about his mere 1.1 % {(100-90)/90} growth. Who do you think should get the gold medal?
A few among us like to believe that Naren deserves the gold medal for his fantastic growth rate. That is a tragic interpretation of the ground reality that the government attempts to excite elation among the gullible.
Zeno’s Paradox
Zeno of Elea, born in South Italy (490-430) BC was a pre-Socrates Greek philosopher who posed this paradox for the world to solve. His argument could be interpreted below in a modern setting relevant to our times,
Imagine, for the purpose of a fancied Formula 2, a Ferrari that runs at twice the speed of its next competitor, Mercedes. The latter is given a handicap timing of, say, half hour. So, Ferrari starts at 7.30 after Mercedes had dashed off as fast as it could at 7.00 one bright morning.
When Ferrari reaches at pitstop 1, Mercedes had left 15 minutes before. Not to be frustrated, Ferrari rushes to pitstop 2, only to find that the Mercedes was off 10 minutes ago. At pitstop 3, Ferrari finds Mercedes had left 7 minutes sooner. This could go on, but Ferrari may never catch up with Mercedes while time difference keeps tending towards zero, but never attain zero.
It may be another matter that in real life, Ferrari may breast the tape with Mercedes sometime earlier, yet Zeno has a point.
The ‘fastest’ Growth
Note
- Throughout this essay, GDP figures are expressed in nominal terms as published by International Monetary Fund (IMF).
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Now let us examine India’s fastest growth in absolute nominal GDP values in comparison with China on the same scale. I have not included the GDP and growth rate of the United States (even under Trump) to ensure that the charts do not become too complex to comprehend.
The two charts reveal the following:
- China, which was blamed for the emergence of Covid 19 in the first place, was not affected by a fraction as much.
- The black sliding line in the Chart 1 shows that the law of diminishing return, if any, has affected the growth of both. Note that the GDP growth rate in percentage terms under Narendra Modi does not come even close to that under Manmohan Singh. On the other hand, the hectic activity by China in the fields of infrastructure, Defence production, spread of RMB (CNY) as a common currency in many parts of the world and command over Ai, apart from its political and economic proselytism with religious zeal in widening its influence and rising exports in Europe, Asia and Africa justify no hope of China diminishing its rate of returns.
- India’s growth rate appeared to surpass China’s only in 2021 after a phenomenal fall due to the effect of Covid 19. This fantastic growth of 9.7% was after a deep depression of -5.8 in FY 2020-21, which followed a low 3.9% in 2019-20. Hence the actual nominal growth was only (9.7-3.9); 5.8% in a two-year period.
Not enough, nor sustainable?
Consider a few hypothetical values
- Current growth rate continues with minor variations. In the year 2025, China has a huge head start of 19.4 trillion US $ over India’s 4.4 trillion. That is a wide gap of US$15 trn . Granting, for computation’s sake, that this difference will continue with India enjoying at 6.4% growth while China wallow at a (hopefully) 2% lower growth rate at 4.4
Let us do a little computation. The method used is as computed in the case of a given rate of growth compounded over a period of time Using the logarithmic method,
That is, India will reach the same economic status in the year 2097.
- China at an even lower value
Suppose in its unbridled ambition India prays that China’s growth rate diminishes to an average of 2.6% in the coming years while India stays steady at 6.4 per year, and that prayer is answered. With the same technique of computation, we see that the twain will meet in 35 years, that is, in 2060….… (2)
- India grows at a much higher rate
Even if India grows henceforth at 10% and China stays static at 4.2%, India will catch up on in 27 years – ie, in 2052 …..(3)
- India catches up with China in 2030
This is a plan envisioned by the November 2025 summit of a startup named Tech Sparks in 2030 with a stated panel of brilliant economists and political stalwarts. They envisage a growth rate of 10%.
Unfortunately, 10% growth rate is peanuts for this target. Using the same compound growth formula and solving for time variable for a constant (5 years), India will need to maintain an impossible constant growth rate of 42% per year…..(4)
Growth in Real absolute terms.
The IMF guestimate for India’s growth rate for India in the year 2025 is 6.2 – 6.4%. Let us take the better growth for our computation.
Basic GDP in 2015 = 4.4 Trn
Growth rate : 6.4 Trn.
Absolute growth : 4.4×6.4% = . 281 bn
Consider China’s growth rate at the lower 4.2%
19.4Trnx4.2% = 814.8 Bn
India’s progress is designed to be seen in the voter’s perspective – it largely depends on freebies. India becoming a developed nation by 2047 will remain a chillum dream of poorly educated politicians.
