One of the biggest drawbacks of Indian economy is said to be the lack of adequate physical infrastructure, which caps growth potential of the economy. Every time the growth rate is on an upward trajectory and the economy looks set for the take-off, inadequacy of infrastructure causes overheating and the growth rate is pulled down, till next time when new triggers pull it up again.
Analysis of readily available data spanning over 50 years (1961-2014 – Source: World Bank) presents a picture of an economy that is in a step-up mode. It is interesting to review the data comparing its behavior over different time periods.
- Pre reform period (Pd I) – 1961 to 1991 – characterized by the alleged low Hindu growth rates. Average growth rate during this period was 4.13%
- Post reform era (Pd II) – 1992 onwards – when the license-permit raj was dismantled and the economy gradually started integrating with the global economy. Average growth rate during this period climbed to 6.79%.
- Post 2002 (Pd III) – 2003 onwards – when the economy was on the high growth path in a world awash with surplus liquidity, average growth rate being 7.72% during the period
Along with successive higher growth rates, volatility in growth rates, as measured by standard deviation (SD), has continuously fallen for the three periods from 3.35 in Pd I to 2.03 in Pd II and finally to 1.90 in Pd III.
Every time, the economy peaks, the subsequent one/two years witness severe dips, even below the global growth rates. The ‘ritual’ steep fall after the peak is a phenomenon that has continued in all the periods.
An example is the time period 1988-1991. Peaking at 9.63% in 1988, growth petered out and dipped to 1.06% (below the global growth rate of 1.41%).
Similar thing happened earlier between 1975-76 and 1977-79. See the graph alongside.
The latest period (i.e. Pd III) has seen bottoms being formed at levels much higher than the global growth rates.
Year 2000 was the last time when Indian growth rate dipped below global growth rate. Subsequent time period – Pd III is the period during which the Indian economy has consistently stayed above the global growth rate, even though there has been the peak and the subsequent ‘ritual’ fall.
What these data points do not tell us is that
• Indian economy has broken free of the global economy
But the data does tell us that
• Volatility in growth rates has reduced significantly
• Indian economy is growing at a robust rate despite the global economy slowing down and
• If the trend persists, gap between the two series will widen. This is confirmed by the diverging trend lines.