No miracles in India – but improvements

08:33 by Hubert Fromlet, Kalmar

India’s GDP grew by 6.1 percent in the first quarter of 2017 compared to the first quarter last year. This was below expectations and the average annual GDP growth from the second quarter of 2016 until the first quarter in 2017 (7.1 percent).

Both private consumption and investment contributed to the slight downsizing of the Indian economy. Many analysts see the enormous reduction of the money supply last fall being responsible for this development (objective: combating corruption)

This may have been partly the case. But in my view the Indian economy is not as strong as it currently is described by many economists. Still India’s institutional shortcomings are too much of a growth burden.

However, there have happened institutional improvemens in India in the past two decades or so. Thus,  potential growth in India has grown. But it would be the wrong analytical way to continue to compare the ongoing Indian GDP changes with the Chinese ones (which often is done). These countries are in many – or even most – respects completely different.

Pure GDP-growth numbers do not teĺl us too much about the medium-term outlook for the Indian economy either.

Therefore, I also look very much at the annual publication of the World Bank called “Doing Business”. Here we can read quite a bit about institutional changes in different countries – institutional changes that to a high extent determine economic long-term conditions in both China and India (and other countries).

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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