Whether this blockbuster growth figure is simply a short-term rebound in response to the prior collapse—or whether this upturn represents the dawn of a new era of China-like macroeconomic performance—is a little too early to tell
The world’s second-largest developing economy had also seen its output growth steadily grind lower since 2016
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The Indian government recently announced its GDP growth expectation for 2021/22 (the Indian fiscal year ends in March) at 9.2 percent. If realized, this would be a sharp reversal from the -8 percent COVID-19-induced drop in 2020, and likely allow India to claim the mantle of being the world’s fastest-growing major economy in 2021.
This is both heartening and impressive, and all the more so in light of how India was ground zero for the deadly delta variant. The world’s second-largest developing economy had also seen its output growth steadily grind lower since 2016. At the time, many had blamed two major policy errors by the Modi administration—a largely ineffectual demonetization effort in the winter of 2016, and a botched GST rollout the following summer—for short-circuiting an otherwise impressive growth record in the years prior.
But truth be told, whether this blockbuster growth figure is simply a short-term rebound in response to the prior collapse—or whether this upturn represents the dawn of a new era of China-like macroeconomic performance—is a little too early to tell. But the trajectory that India ultimately follows is likely to depend not only on its growth potential (which, give a still-youthful working-age population, ample room for further expansion in educational attainment, and solid sources of investment financing, is remarkably solid), but also on its ability to execute a hitherto untested development model.
Prior to India, most developing countries—especially those in East Asia—relied on a tried-and-tested development strategy: they would rely on high domestic saving (possibly supplemented by external saving from global capital), finance rapid capital accumulation, and supplement this with a large, comparatively low-wage labor force to produce exportable goods for the global market.