The Indian government published an optimistic economic report on Wednesday forecasting growth between 6.1 and 6.7 percent in the coming fiscal year.
But while that may initially sound like great news, especially considering the impact that India’s slowdown has had on the global economy, the actual outlook may still be rocky. Several Indian economists, in statements to the New York Times’ India Ink blog, expressed doubts about the report’s optimism. And Indian media have covered the report with headlines like “Indian economy more vulnerable to global shocks,” despite rosier headlines in the foreign press.
“India is in a difficult situation, but it is by no means in an impossible situation,” chief economic adviser Raghuram Rajan told media, adding: “A return to high growth looks improbable today.”
For starters, 6.1 percent growth in India is not quite as great as it would be in the U.S. This chart shows GDP growth for several economies in 2010 and 2012:
A few obstacles are keeping India from achieving that kind of growth again. For one thing, the country has a reputation for being business-unfriendly -- it ranks 132nd in the World Bank’s ease of business survey. The chart to the left shows the soaring number of projects that were started, and stalled, India -- often because of government policies and regulations, the report says. The chart to the right shows a drop in investment.
Industry and agriculture have stalled out, and growth in India’s service sector hasn’t made up the difference. As the Wall Street Journal points out, agriculture accounts for only 14.1 percent of GDP -- but employs half of India’s population.
And food inflation remains rampant, despite good signs elsewhere. (The WPI, or Wholesale Price Index, is India’s main measure of inflation.)
On top of all that, the report said India’s trade and budget deficits -- both of which show the country’s economic vulnerability -- are big concerns.
That doesn’t mean, of course, that India can’t turn these things around. India releases its national budget on Thursday. In the words of economic adviser Rajan, “it always looks improbable until it’s done.”