India has been expanding its economy at breakneck speed. Since 2000, the Asian country has been among the fastest growing economies of the world. India is also reportedly the fifth largest economy in the world after Germany.
According to data from the World Bank, India has consistently grown its economy for the last 50 years.
- In what can only be described as a miraculous feat, India managed to register positive and double-digit economic growth in the last quarter amid a slowing global economy. African economies would do well to study India’s economic miracle
- The Asian country is projected in the next 3 years to be the fastest growing economy in the world. Economists are sceptical of the recent double-digit growth figures reported. They say that economy of India will most likely slow down as the growth in the reported quarter came off a low base from the previous quarter
- India’s strong economy owes itself to several factors which are catalysts for the high rate of economic growth as well. These factors should serve as critical lessons for African economies, which tend to be vulnerable
The country achieved a higher rate of economic growth than China. India grew its economy at by 8.9% compared to China’s 8.1% in 2021. India broke records again recently when it was announced that in the second quarter of 2022, the country had grown its economy by 13.5%.
This metric though impressive, was said to be less than the GDP growth that had been projected for the country.
World Bank economic growth statistics for India and China since 1971 to 2021Second quarter economic growth for India is said to have come from a boost in agricultural production as well as in manufacturing. According to official data, the reason for this growth spurt in the last three months has been attributed to the easing of COVID restrictions.
Economic analysts, however, have attributed the growth feat to have come from a low base from the previous quarter. The same economists in a poll held by Reuters had forecast that the economy would grow at a rate of 15.2% compared to 4.1% in the previous quarter.
The growth achieved by India is lower also than what the country achieved in the same quarter last year of 20.1%. Notably, the International Monetary Fund (IMF) revised India’s growth rate from 8% to just above 7% for the current year. Regardless of the downgrade and opinions from economists, India remains one of the fastest-growing economies in the world.
The double-digit growth that the country achieved is against a background of a slowing global economy in which the largest economies of the world have recorded negative GDP growth and or reported slowing economic growth in the case of China. The World Bank describes India as the world’s largest democracy on account of its massive population of 1.2 billion. According to the multilateral financial institution, “Since the 2000s, India has made remarkable progress in reducing absolute poverty. Between 2011 and 2015, more than 90 million people were lifted out of extreme poverty.”
India has successfully been integrated into the global economy and that has been coupled with economic growth. The country now has the prestigious title of being a global economic player together with being a member state of the BRICS countries.
BRICS is an acronym used to describe five of the fastest growing economies of the world namely, Brazil, Russia, India, China, and South Africa.
For its well-deserved and impressive GDP growth, India was not spared the effects of the COVID pandemic. The World Bank reports that in 2021 its economy contracted by 7.3% despite the well-crafted and well-intentioned monetary policies. The effects of the second wave of the pandemic are expected by the World bank to put a damper on the economic growth that India is enjoying. However, the country will remain among the fastest-growing economies in the world. Factors that will influence the pace of economic growth in the case of India for the World Bank will be the rate at which vaccination is gathering momentum. Successful implementation of agriculture and labour reforms will likely give steam to the economy in the medium term. The World Bank, in its overview of the country, cautions, however, that economic growth going forward will be constrained by weakened households and consumers together with weakened corporate balance sheets.
- African countries tend to be overly reliant on foreign demand to drive their economies. On the other hand, India enjoys robust domestic demand, which has insulated it from external shocks.
- India’s well-diversified economy with several facets driving economic activity and growth. Africa, on the other hand, has economies that are anything but diversified. This lack of diversity makes them vulnerable to shocks and downturns.
- Examples of African economies in critical need of economic diversification include, among others, Zimbabwe, which was anchored on agriculture and suffered after ill-fated land reforms at the turn of the millennium. The same can be said about Zambia and Ghana, whose economies depended on a single commodity’s production.
In terms of the economic outlook for India, opinions are divided given the headwinds facing the global economy presently, like the cost-push inflation from increases in food prices and soaring energy costs brought on by the Russia-Ukraine conflict. Deloitte, the global consulting and accounting firm, is optimistic about the economic growth prospects of India. It is projected that the Asian country will remain the fastest growing economy in the world, with growth projected to come in at between 7.1% to 7.6% in the years 2022 to 2023 and 6% to 6.7% in the years 2023 to 2024.
How has India managed to bullet-proof its economy to the extent that it has managed to register economic growth within a context of slowing global economic growth? According to Deloitte, India is primarily a domestic demand-driven economy, with consumption and investments contributing to 70% of the economic activity.
According to the Reserve Bank of India (RBI) analysis of 10,000 listed companies, businesses have seen a steady net profit-to-sales growth over the past year and are sitting on piles of cash. This fact highlighted by the global accounting firm is a key contrast with African economies, which tend to be driven by factors other than domestic demand. African economies generally suffer from a disproportionate dependence on foreign demand to drive economic growth.
This fact is visible in the various activities that anchor the same economies. For the most part, countries in southern Africa and the rest of the continent have tended to be reliant on economic activities around primary and extractive industries like mining. The vulnerability for these economies emanates from the fact that the natural resources that these countries produce are sold unrefined and with no value addition. These products are sold on global markets where none of the African countries are price makers. They are price takers.
This is an important lesson for natural resource-dependent African economies. The Indian economic miracle has been achieved by the pursuit of economic policies that expand domestic demand. The second point that Deloitte makes to explain the economic miracle of India is that the country’s government is starting to increase capital expenditure relative to revenue expenditure. India’s gross tax collection has beaten all expectations. The total tax collection reached INR 27.07 lakh crore (US$356.82 billion) in FY21–22, surpassing the government’s revised target by a substantial margin, Deloitte says. Higher capital expenditure on infrastructure and asset-building projects will likely boost growth multipliers in the medium term.
- India’s GDP comprises agriculture, manufacturing, mining, and services are growing in significance. As of 2020 statistics, services contributed more than half of the GDP of the country. Countries in Africa have a little contribution from services to their respective economies. Unlike in India, countries in Africa rely on primary and extractive industries producing commodities on world markets where they are price takers and not price makers. There is little value addition in the commodities produced by African countries, which is a limiting factor to their economic growth potential.
The last point made by Deloitte in their article is that exports in India relative to GDP have been growing. Another very important point to note is that service exports are also growing relative to merchandise exports. India’s economy is also significantly diversified. Services comprise 55% of the country’s GDP as of 2019. Agriculture which used to be the country’s mainstay but its contribution to GDP has since declined to 18.32% as of 2020. Analysts have, however, warned that this decline in contribution should not be equated with a reduction in production in the agricultural sector. It should rather be viewed in terms of an increase in the contribution to GDP of other sectors.
India is the world’s second-largest fruit producer and the leading global producer of lemons, bananas, mangoes, papayas, and limes. This is according to India’s Department of Agriculture Cooperation and Farmer’s Welfare. Forestry and aquaculture are also increasing their contribution to the economy. Additionally, India enjoys a robust industry and manufacturing sector driven by the petrochemical industry, which began in the 1970s. Pharmaceuticals, cars, motorcycles, and equipment are goods that are manufactured in India and are supplied on the world markets. Its economy is diverse, with many sectors emerging, like mining. Services like information technology, business services outsourcing and retail are also taking centre stage, and the diversity of India’s economy is the best explanation for its resilience and continuous growth despite the global economic downturn. This economic feat is an outlier and should be instructive for policymakers and leaders on the African continent.