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Understanding the ‘Hindu rate’ of India’s economic growth trajectory

04 Mar 2024 17:06 IST
India has sustained over 5 percent economic growth since the financial year (FY) 2019-10, except for the turbulent pandemic year of 2020. Consequently, it claims the title of the fastest-growing economy in the world. During this period, Indian policymakers focused extensively on demand-centric approaches to support growth through both manufacturing and services. With a forecast of 7 percent of sustained growth, India is estimated to surpass China’s economic development between FY2023 and FY2028.

Does this indicate that the time has come for economists to revise the ‘Hindu Rate of Growth’ upwards? It seems so. With favourable policies in place, India’s economy is forecasted to withstand the current growth rate, barring unforeseen exceptional events such as the Covid-19 pandemic. In such exceptional cases, however, the entire world is going to be impacted, with India being no exception. Given the present factors, economists project India’s economic growth rate to remain phenomenal in FY2024 (ending March 2024).

After a staggering growth rate of 9.1 percent and 7.2 percent in FY2022 and FY2023, the National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI) projects India’s economic growth at 7.3 percent in FY2024. In its latest Monetary Policy Committee (MPC) meeting held in February, the Reserve Bank of India (RBI), pegged India’s economic growth at 7 percent during FY2024-25.

Gross Domestic Product growth rates (%)

Financial Year Period

India

China

1980-89

5.5

9.8

1990-99

5.7

10.0

2000-09

7.0

10.3

2010-22

6.2

7.0

2023-28*

7.0

4.1

Source: Blume Ventures Pvt Ltd., and Polymerupdate Research; *Estimates


Following an impressive 8.4 percent growth achieved during October-December 2023, global rating agency Moody’s raised India’s economic growth projection to 6.8 percent for FY2024, up from the earlier projection of 6.1 percent. The rating agency expressed optimism about the Indian economy remaining the fastest-growing among the Group of 20 (G20) economies, primarily due to substantial capital spending by the government and strong manufacturing activity.

Madan Sabnavis, Chief Economist of Bank of Baroda, stated, “We have seen the Indian economy faring well in FY2024, which we believe will replicate next year too. We are estimating a growth of 7.8 percent for FY2025. This is based on two assumptions. First, the forecast of normal monsoon rainfalls will lead to a revival in rural demand, which remained subdued of late. Second, private sector investment will also pick up gradually and gain momentum in the second half. In FY24, the net taxes component did very well and added luster to overall growth. This will moderate but continue to be steady.”

The ‘Hindu rate’ of economic growth
The term ‘Hindu rate’ of economic growth was coined in 1978 by Indian economist Raj Krishna, referring to the 4 percent annual growth rate of the Indian economy before the economic reforms that began in 1991. In fact, for the three decades between 1950 and 1980, when India became an independent Republic, the country’s economic growth rate averaged 4 percent. Economists often criticized India’s slow rate of economic growth and recommended the government transition from a ‘centrally planned’ to a ‘market-led’ economy through indicative planning to accelerate growth.

Interestingly, the economy of India accelerated and grew at a rate of around 3-9 percent since the economic liberalization began in the 1990s except in 2000. Between 1981 and 1991, the Indian economy reported an expansion of 5.8 percent with the government’s reform measures, accelerating further thereafter.

India’s economic growth

Financial Year (FY) ending March

Rate (%)

Financial Year ending March

Rate (%)

2024*

6.0

2011

8.5

2023

7.2

2010

7.9

2022

9.1

2009

3.1

2021

(-)5.8

2008

7.7

2020

3.9

2007

8.1

2019

6.5

2006

7.9

2018

6.8

2005

7.9

2017

8.3

2004

7.9

2016

8.0

2003

3.8

2015

7.4

2002

4.8

2014

6.4

2001

3.8

2013

5.5

2000

9.0

2012

5.2

1999

6.2

Sources: Blume Ventures’ Indus Valley Annual Report 2024, and Polymerupdate Research; *Estimates


Blume Ventures’ projection
Mumbai-based financial institution Blume Ventures Advisors Pvt Ltd projected India’s economic growth at 6 percent for FY2024, with a US$3.7 trillion economy in the previous year. The financial institution revealed India’s gross domestic product (GDP) to remain the fastest-growing economy among major ones such as China (4 percent), Indonesia (5.1 percent), and the United States (1.4 percent), averaging a global total of 2.7 percent.

The financial institution studied five unexpected and inconvenient incidents that rocked the Indian economy during the last two decades. The dot-com bubble hit the Indian economy hard during the early 21st century. This was followed by the Global Economic Crisis (GFC) which started with the collapse of the Lehman Brothers in 2008 and gradually cast a shadow on the world’s financial system. The crisis began with American banks offering predatory lending in the form of subprime mortgages targeting low-income homebuyers, and excessive risk-taking by global financial institutions.

Further in 2013, the world economy was impacted by the Taper Tantrum, impacting the Indian economy also. The terminology ‘Taper Tantrum’ refers to the surge in the US Treasury yields, resulting from the Federal Reserve’s announcement of future tapering of its policy of quantitative easing. The Fed announced that it would be reducing the pace of its purchases of Treasury bonds, to reduce the amount of money it was feeding into the economy.

The crisis erupted across Non-Banking Financial Companies (NBFCs) with the collapse of Infrastructure Leading & Financial Services (IL&FS) in FY2018, followed by the Covid-19 pandemic in 2019. In the NBFC crisis, the bubble of private banks and financial institutions in India burst which caused debt-oriented companies to shut down. The Covid-19-induced lockdowns brought the entire world to a standstill, with India being no exception.

According to the Blume Ventures study, India’s economic growth is projected to surpass that of China for the first time in the FY 2023-28 period due to the latter’s substantial meltdown in the construction and housing sector, and consumption-centric all-around acceleration across the Indian economy.

Conclusion
Despite smoothly running several public welfare schemes, India has elevated to claim the fifth largest economy in the world now from the 11th position over a decade ago. With this growth story, the government has set an eye to become the third-largest economy by FY2030. The country has done well to successfully break out of the old Hindu Growth Rate of 4 percent and grow consistently at around 6 percent during the last four decades. Therefore, economists now call for an upward revision in the Hindu growth rate to 6 percent.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com