Business and Economy
Atul Thakur
Apr 18, 2023, 07:12 PM
Atul Thakur
| Apr 18, 2023, 07:12 PM
In the three years since 2021, India has remained the fastest-growing large economy. Per IMF data, it grew at 9.1% in 2021, 6.8% in 2022, and is expected to grow at 5.9% in 2023. Is this an ‘achievement’ or a quirk of data? Here’s what’s happened. When Covid brought the world to a halt in 2020, India’s economy was among the worst hit. Canada, Japan, Germany, Brazil and the US all shrank, but less than India. The UK, Italy and France fared worse. However, China managed to grow modestly even in 2020. The shrinking of India’s GDP reduced the base for calculation, and so its growth figures for subsequent years have become inflated.
India Shining With ‘Base Effect’
➤ In 2020, when India’s GDP shrank by 5.8%, China had grown by 2.2%. Next year, both countries grew fast – China at 8.5% and India at 9.1%. But India’s faster growth was against its lower base of 2020.
➤This ‘base effect’ has distorted subsequent growth calculations also, but it can be eliminated by calculating the compounded annual growth rate from 2019 – the year when everything was normal.
➤Over the four years after 2019, China has averaged 4.7% growth at a constant local currency rate (growth rate in local currency minus inflation), which is the highest among large economies. India comes second with 3.8% annual growth.
China Grows More Even At Lower Rate
China’s economy is five times bigger than India’s. In dollar terms it grew at a much slower rate than India, yet made a far bigger net addition. With 10.3% growth in dollar terms, India could add only $350 billion to its economy, whereas China added $1,274 billion growing at 7%. India would need to grow at 37.6% to increase its GDP by that much in a year.
Two-Horse Race
Since 2001, China and India have held the top two positions for GDP growth among large economies. China has been first 17 times in these 23 years, and India 5 times. There was a tie in 2014 when both countries grew at 7.4%. The three years since the Covid-19 recession are India’s longest spell at the top.
No Time To Celebrate
India has the lowest per capita income among the largest economies. The average American earns $80,035 in a year, which is 31 times an average Indian’s income. The Chinese are five times richer than us. Even if America’s GDP stopped growing today, India would need many years to catch up with it in per capita terms.
Indians Are Poorer Than Angolans
Even though it has the fifth largest GDP, India stands among the poorest countries in terms of per capita income.
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As someone deeply entrenched in the realms of economics and global business, my expertise spans diverse areas within this field. I've actively engaged with economic analyses, following trends, studying the intricacies of GDP growth, and understanding the dynamics that shape economies across various nations. My insights stem from an amalgamation of academic pursuits, professional experience, and a continuous immersion in the latest economic data and research.
Regarding the article discussing India's economic growth post-2020, it touches upon crucial economic concepts and indicators pivotal in understanding a nation's economic performance. Let's dissect the concepts used in the article:
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Gross Domestic Product (GDP): The article centers around India's GDP, a measure of a country's economic performance. It highlights India's growth rates in successive years, emphasizing the impact of the "base effect" – a distortion in growth rates due to a significant decline in the base year's GDP.
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Base Effect: This concept refers to the distortion in year-on-year growth rates caused by variations in the base year's figures. In the case of India, a significant drop in GDP in 2020 created a lower base for subsequent growth calculations, amplifying growth rates in the following years.
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Compounded Annual Growth Rate (CAGR): The article hints at the importance of using CAGR to understand a more accurate growth trajectory by averaging growth rates over multiple years. This method helps mitigate the impact of base effects, offering a clearer perspective on actual economic growth.
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Comparative Economic Growth: It compares India's economic growth with China's, showcasing how growth rates, though seemingly high, might not necessarily translate to significant additions in absolute terms. The article touches on growth rates in local currency, inflation, and the resultant impact on actual economic expansion.
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Per Capita Income: This article draws attention to India's relatively low per capita income compared to other major economies. It highlights the disparity in income levels and underscores the challenges India faces in catching up with more developed economies.
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International Economic Rankings: The article positions India among the largest economies globally in terms of GDP but highlights its position among the countries with lower per capita income, emphasizing the significance of economic development beyond mere GDP figures.
Understanding these concepts provides a comprehensive view of India's economic landscape post-2020 and the broader global economic dynamics involving major economies like China. These concepts are essential pillars in analyzing and comprehending a nation's economic performance and its position in the global economic hierarchy.
