Economic Decline

The period when India reported exceptional GDP growth rates was accompanied by greater trade integration between India and Pakistan.

By Aadil Nakhoda | March 2020


The Indian economy is currently experiencing a poor patch as its GDP growth has tumbled below 6% in the last two quarters. The GDP growth rate at market prices based on constant local currency as reported by the World Bank for India was on an ascendency between 2011 and 2016, peaking at 8.17%. This ascendancy in the economy had provided several opportunities to the smaller economies of South Asia to tap into the expanding market potential through greater trade integration with India and consequently with other regional countries.

India is currently reporting its slowest expansion reported since 2013, with growth rates expected to be below 6% in 2019. Raghuram Rajan, the former Reserve Bank of India governor, has stated that India is in a ‘growth recession’ as he raises concerns not only on the real sectors of the economy and on the consumption demand, but also on the rising corporate and household debt as well as on growing unemployment. India experienced six quarters of slowing growth. Further, the IMF projected a reduction in its growth rate. National statistics are indicating a struggling economy. Government officials continue to tout India to grow to $5 trillion by 2024, making it the fourth largest economy in terms of nominal GDP, overtaking Germany, United Kingdom and France. Although, India, in all possibility will overtake its European counterparts in the next twenty years or so even if it grows at a relatively modest rate of 5% per annum, its dream of achieving such a status in the next four years seems impossible. According to basic calculations, the nominal GDP has to grow at more than 10% per annum for it to achieve the impossible.

The statistics provided by the Reserve Bank of India paint a gloomy picture in 2019-20 relative to the readings reported in the previous fiscal year. The industry growth rate is at -0.5% in Q2 of 2019-2020 from 9.9% in Q1 of 2018-2019, services growth has declined to 6.4% from 7.5%, and gross fixed capital formation growth has fallen from 13.3% to 1%.

The inflation in India is also reporting an upward trend as the All India consumer price index has increased to 5.5% in November 2019 from 2.3% in November 2018. Foreign trade has also been on a declining trend. Exports declined by 0.3% in November 2019 and imports declined by 12.7%. The growth rate in October 2018 was strongly positive for exports and imports in 2018-19, at 8.7% and 10.4%, respectively. With India by far the largest country in South Asia, the declining trajectory in its growth and trade is likely to have an impact on regional integration.

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The writer is an Assistant Professor of Economics & Research Fellow at CBER,
Institute of Business Administration (IBA) Karachi. He can be reached at
anakhoda@iba.edu.pk

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