Elephant can run

Elephant can run

India recorded double digit growth twice in the last decade, must do so again.

In 2015, India shifted to a new series to estimate gross domestic product with 2011-12 as base year. Unusually, the new series was not used to estimate GDP for the earlier period which made it tricky to compare growth rates over time. Last week, government released indicative data for the prior phase which threw up a pleasant surprise: twice in the last decade India recorded double digit growth. The data serves to highlight the economic momentum possible. To actualise this possibility we need to learn lessons from the last decade.

In 2007-08 GDP grew 10.23%, a notable feat driven by a surge in private investment and the government’s fiscal rectitude. The most important lesson from this phase is the importance of investment in creating conditions for durable growth. Reforms across governments had made India an attractive investment destination and Indian companies were at the forefront of an infrastructure boom. Investment as a proportion of GDP was around 39% and it was during this phase that bank credit grew at a scorching phase.

The next time GDP grew in double digits was in 2010-11. But this occasion came with downsides. On the heels of the global financial crisis of 2008, fiscal and monetary policies turned loose. The combined effect of loose policies and weak systems led to a slowdown and banking crisis. The lesson is that loose fiscal and monetary policies eventually lead to serious problems. In his Independence Day speech from Red Fort last week, Prime Minister Narendra Modi referenced India as a running elephant. Indeed the Indian elephant can run, but rapid growth calls for pressing the accelerator on reforms and a simultaneous overhaul of institutions. If India’s policymakers internalise these lessons, double digit growth can be achieved on a regular basis.