As the GDP growth rate touched 4.5% in the second quarter of FY20, a phrase that comes to mind is the 'Hindu rate of growth' of bygone times.
If you're wondering what that means, the 'Hindu rate of growth' refers to the low annual growth rate of the economy of India before liberalisation in 1991. During this phase, from 1950s to 1980s, the growth rate had stagnated at around 3.5%, with per capita income growth averaging 1.3%.
The rather communal-sounding phrase was coined by Indian economist Raj Krishna in the 70s. The term was later used by some economists to imply that the Hindu outlook of fatalism and contentedness was responsible for the slow growth. Later economists rejected this in favour of the idea that the Government's protectionist and interventionist policies at the time may have been the reason behind slow growth.
But this is in the past. The question of the hour is somewhat different. Irrespective of the term, is India headed towards such a scenario? Or did we never quite leave it behind?
Earlier in July, Narendra Modi government’s former Chief Economic Advisor (CEA) Arvind Subramanian had said that India's economic growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in the method of calculating GDP.
"Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7 percent. We estimate that actual growth may have been about 4½ percent with a 95 percent confidence interval of 3 ½ -5 ½ percent," Subramanian writes in the Abstract of the research paper for the Center for International Development at Harvard University.
In an article written by him for The Indian Express he elaborates on his research: " Policy discourse recently has focused on employment, agriculture and redistribution more broadly. The popular narrative has been one of “jobless growth”, hinting at a disconnect between fundamental dynamism and key outcomes. In reality, weak job growth and acute financial sector stress may have simply stemmed from modest GDP growth"
He suggests that moving ahead, the focus should be on reform based on the knowledge that "has been tepid, not torrid".
Interestingly enough, he is not alone in this notion. More recently, BJP leader Subramanian Swamy in an interview with Huffington Post India said that the second quarter numbers might not be up to scratch.
"Do you know what the real growth rate today is? They are saying that it is coming down to 4.8%. I’m saying it is 1.5%,” he had said just two days before the data was announced.
Another question that comes to mind now is whether given the circumstances, the 5 trillion dollar economy dream achievable? Well, currently the answer seems to depend on who you ask.
Many including former Reserve Bank Governor C. Rangarajan have said that at the current growth rate, reaching that lofty target by 2025 is “simply out of question“.
“Today our economy is about USD 2.7 trillion and we are talking about doubling this over the next five years at USD 5 trillion. The required rate of growth to achieve that level is in excess of 9 percent per annum. Reaching USD 5 trillion by 2025 is simply out of question,” Dr. Rangarajan had said earlier in November.
Government officials including Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman however insist that the target is feasible still. A day after the GDP growth rate data for the second quarter of FY20 was announced at 4.5%, PM Modi took to social media to laud the efforts of the NDA government in its first six months since re-election.
Home Minister Amit Shah added that the current economic slowdown was a "temporary phase" and said that the vision of a 5 trillion-dollar economy by 2024 still stands strong.
Finance Minister Nirmala Sitharaman echoed these sentiments. Marking six months of the Modi-led government's second term, she said that significant steps have been taken for structural reforms of the country.
In the meantime, the RBI has lowered its growth full year forecast in two months to 6.1 per cent in its October policy review.
(With inputs from agencies)