India may have to revise downwards ‘potential’ growth rate from 7-8%: ex-CEA

India may have to revise downwards what is considered its “potential” rate of growth from 7-8% to bring expectations more in line with reality, former Chief Economic Adviser (CEA) Arvind Subramanian has argued in a paper. This paper comes as a follow-up to the one Mr. Subramanian published last month, in which he had argued that India’s GDP growth in the 2011-17 period had been overestimated by 2.5 percentage points and that the actual growth rate was about 4.5%. The original paper drew a lot of criticism over its methodology and assertions. The follow-up paper is an attempt to address those criticisms. The first question raised, Mr. Subramanian said, was how India can, right now, grow at the same rate as it did in the pre-1980 Hindu rate of growth period, when the economic condition was clearly much worse. “To begin with, today’s 4.5% translates into a per capita growth rate of about 3%,” he said. “In the pre-1980s era, the GDP growth rate was about 3-3.5% and the population growth rate was 2%, yielding a per capita growth rate of 1-1.5%. So, today’s 4.5% represents more than a doubling of the old “Hindu” per capita growth rate.” “In fact, if we take all the large major economies of the world, say those with GDP greater than $1 trillion [there are 13 of them], India, at 4.5% real GDP growth, would be the second-fastest growing economy in the 2012-2016 period, just as it was in the 10 years preceding.” The second issue he sought to address was that the cognitive benchmark during India’s boom years was 8% growth and that this benchmark has not changed over the years. He argued that this benchmark of 8% failed to take into account a number of factors that took effect in the years following the boom years, such as the twin balance sheet (TBS) problem, the export collapse, rising oil prices, loss of macroeconomic stability under UPA-II, drought in 2014-15, and finally, demonetisation.

Source : https://www.thehindu.com/todays-paper/tp-business/india-may-have-to-revise-downwards-potential-growth-rate-from-7-8-ex-cea/article28567377.ece

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