Column : Is India’s growth story dead?
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It wasn't too long ago that we were beginning to discuss 10% growth for India as a realistic aspiration. Some observers even began to question the focus on growth alone (at the expense of other dimensions of development). Recent events have taken care of that worry, though not in a way that might have been desired. India's growth has slowed sharply. Even the latest, more optimistic forecasts of global investment banks talk of recovery to growth rates in the 6-7% range. That is not bad, but not the stuff of miracles, and not rates that will make a rapid dent in poverty.
In August 2012, Dani Rodrik of Harvard wrote a piece titled "No More Growth Miracles", arguing that technical progress in manufacturing is becoming more skill- and capital-intensive, and that there is less room to export for new entrants. Hence, growing through labour-intensive manufactured exports, the recipe for the growth miracles of the last six decades, is going to be more difficult than in the future. Compounding this problem for countries such as India is the slowdown in advanced economies, as they age and as they deal with accumulated debt.
According to Rodrik's analysis, India may have missed the boat. Or, to use another metaphor, we finally decided to join the party as it was winding down. India may chug along at 6-7% growth (not difficult with current saving and investment rates), but the kind of fundamental transformation that double-digit growth can achieve is beyond our reach. Note that the Rodrik story does not discount the importance of domestic policy choices; it just limits what difference they can make in the aggregate.
One response to this scenario might be to say that India can still make the best of the hand it has been dealt. Along with 7% growth, improvements in income distribution, institutional quality, and the well-being of the poor in non-income-based measures such as basic health, nutrition and education may be the optimal path to follow. This has something to commend it: investing in people may actually make growth more sustainable. Unfortunately, slower growth could also make progress in all these other dimensions harder rather than easier. A focus on redistribution, in particular, can come at the cost of growth, so that the growth rate may fall even further.
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