In spite of the current global recession being the worst since the Great Depression, in India the downturn has been more muted than previous ones. The Economic Survey compares the 2008-09 slowdown with previous ones in 2002-03, 1997-98 and 1991-92. The details are seen in the chart.
The most obvious fact is that gross domestic product (GDP) growth has been much higher in the current slowdown. The survey points out that the growth rate of GDP at factor cost is 6.5% higher than the average of the last two slowdowns.
But if we look at the components of GDP growth, we find that while the survey has raised concerns about consumption growth, private final consumption expenditure growth has been the highest in the current downturn. The biggest positive, of course, has been government consumption, which went up a huge 20.2% in 2008-09 and was the chief prop to growth.
But then, it’s amply clear that the main reason for the falling off of growth was the deceleration in gross domestic capital formation, growth in which is at much lower levels than during the earlier two recessions.
The gross domestic capital formation (GDCF) rate is at around half that in the previous two slowdowns, although it has certainly not been as bad as in 1991. The survey says, “This is perhaps an indication of how strongly the heightened global uncertainty, risk perception and risk aversion have impacted Indian entrepreneurs.”
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More importantly, with so much overcapacity globally, it’s unlikely that companies in India will be in a hurry to rush through with capital expenditure. So, the whole burden of improving the investment rate will fall on government spending on infrastructure.
Interestingly, agricultural growth was lower during all the previous slowdowns. Manufacturing growth, too, wasn’t all that bad, being higher than the 1991-92 and 1997-98 downturns.
Export growth for 2008-09 as a whole was higher than for 1991-92 and 1997-98, although admittedly exports fared far worse in the second half of the fiscal.
Of course, the structure of the Indian economy has changed dramatically since the 1990s. So, the survey gauges the extent of the slowdown by taking the five- year average growth rate and then comparing it with GDP growth in the year of the slowdown. By this method, the survey finds that “the 1991-92 slowdown was the sharpest, while the other three were of similar orders of magnitude”.
That raises an interesting point. If, despite the deepest recession in the West since the Great Depression, the slowdown in India is just of the common or garden variety, could it be that there’s something in the decoupling thesis after all?
Graphics by Ahmed Raza Khan / Mint
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