Waiting For a Modi Miracle
India is the shining star in the emerging-market pantheon. This is quite a transformation; only a few years ago Chinese growth was rampant while India looked to be falling ever further behind, with growth bottoming out below 5 percent. Today the tables have turned. India is the world’s fastest-growing major economy: according to the Asian Development Bank, it grew 7.6 percent last year and will grow 7.4 percent this year and 7.8 percent next year. While this is not the 9-10 percent annual GDP expansion India clocked a decade ago during the emerging-market boom years, it is perhaps more impressive in light of today’s broader global slump. By contrast, China’s “official” rate of growth was 6.9 percent last year, with a target of 6.5 percent this year and sinking; actual growth is likely lower as the economy slows, the workforce shrinks, and overcapacity and excessive leverage take their toll. Meanwhile, both the Russian and Brazilian economies are contracting due to the commodity bust and gross political malfeasance.
In this light, India’s expansion is counter-cyclical as the rest of the emerging world slows down. “India is a light in a gloomy world economy,” argues the Financial Times’ Martin Wolf. The country is better-governed than its emerging-world peers; its income levels remain so low that its upside potential is greater than any other major market. Its infrastructure and investment requirements are such that India attracted more FDI in 2015 than any other country, including the United States and China, and could easily absorb more global investment capital than any other economy for years to come. To boot, India will soon possess the world’s largest workforce, creating a demographic boon that could power rapid growth for decades. But its singular supply of raw human capital is also the country’s Achilles heel: India’s long-term performance hinges on its ability to productively employ a labor pool approaching 1 billion people.