How WhatsApp forwards are 'powering' India GDP growth

India’s economic power has become a much-quoted metric ahead of Elections 2019. We separate three myths from reality

Now that we are officially in election season, one can expect a slew of report cards on the performance, economic and otherwise, of the ruling Bhartiya Janata Party (BJP) government. However, it’s not that easy to gauge economic performance anymore. Not only are many official numbers under a cloud, over the past couple of years, a small-scale industry fuelled by WhatsApp forwards has built up a narrative around India’s growth story. India here is an economic superpower, one of the best performers on the world stage.

For instance, every time India’s gross domestic product (GDP) growth slows down, we are presented with a counter: so what, we are growing faster than China. Or that India is the fastest-growing economy in the world. Or that this country is the sixth largest economy in the world. How true is this picture of India’s economic strength? To get a complete picture, one needs to pinpoint instances of bluster, as well as highlight nuances.

Myth one: India is growing faster than China

Take a look at Chart 1, which plots the GDPs of India and China, using World Bank data (2010 constant US dollars). Also see Chart 2, which plots the GDP growth—a measure of economic growth—for India and China using the same World Bank data.

In 2017, the Indian GDP grew by 6.68%. The Chinese GDP on the other hand grew by 6.9%. Hence, the Chinese GDP grew faster than that of India. In 2014, 2015 and 2016, the Indian GDP had grown faster than that of China. Before 2014, the Chinese GDP had grown faster than the Indian GDP for 23 consecutive years. The World Bank figures for 2018, aren’t available as yet. But the International Monetary Fund (IMF) expects India and China to grow by 7.3% and 6.6%, respectively, during 2018. So, yes, India has grown faster than China in the recent past. But over the longer term, China has grown significantly faster than India.

In 2016, the Chinese GDP was $9.51 trillion. It grew by 6.9% in 2017 to $10.16 trillion. In the process, the size of the Chinese economy grew by $650 billion ($10.16 trillion minus $9.51 trillion). Now compare this to India. In 2016, the Indian GDP was $2.47 trillion. It grew by 6.68% to $2.63 trillion in 2017. The increase in the size of the Chinese economy ($650 billion) was around one-fourth the current size of the Indian economy ($2.63 trillion divided by $650 billion). A similar sort of dynamic would have played out in 2018 as well.

The point here is that the Chinese economy is much bigger than the Indian economy. Hence, even if it grows at a rate which is similar or slightly less than the growth rate of the Indian economy, the increase in the size of the Chinese economy will be humongous. If we were to talk in slightly mathematical terms, it is important to know the difference between percentages and absolutes and take both into account.

Let’s look at this situation in a slightly nuanced way. When China was as big as India currently is, what was its rate of growth? India’s GDP in 2017 was $2.63 trillion. China had a similar GDP of $2.64 trillion back in 2002 (yes, you read that right). So, in terms of real numbers, the Indian economy is a decade and a half behind China.

In 2000, 2001 and 2002, the Chinese economy grew by 8.49%, 8.34% and 9.13%, respectively. It is worth remembering that this was the time that the dotcom bubble was collapsing, and in this environment, the Chinese economy grew by greater than 8%. In comparison, the Indian economy, in 2015, 2016 and 2017, grew by 8.15%, 7.11% and 6.68%, respectively, without any economic crisis. Simply put, the Chinese economy was in a much better shape when it was the same size as the Indian economy currently is.

The interesting thing is that China’s best years were yet to come and between 2003 and 2007, the country saw a rate of economic growth greater than 10%. In fact, even in the aftermath of the financial crisis of 2008, China continued to grow at greater than 9%. In comparison, the Indian growth has slowed down. In fact, the only time, the country has grown at greater than 10% was in 2010 when the growth was at 10.26%.

Clearly, size matters. As an economy grows bigger, the growth opportunities slow down, and it is but natural for the rate of economic growth to slow down. In this environment, China added one-fourth the size of the Indian economy to itself and the global economy in 2017. And that’s huge.

Myth 2: India is the sixth largest economy in the world

In July 2018, as per IMF, India became the sixth largest economy in the world, overtaking France. As usual, there was much song and dance around this in the media. But in December 2018, France pipped India to become the sixth largest economy again. Of course, this piece of news went almost unnoticed. Fact is, as India has grown over the years, in the process, it has become bigger than other economies in the world. This has played out for a while.

For instance, in 2017, Spain was the 11th largest economy in the world with a GDP of $1.51 trillion. India broke into the top 10, by overtaking Spain in 2009. The Indian GDP during the year had risen to $1.5 trillion whereas the Spanish GDP fell to $1.43 trillion. Let’s now take a look at Canada, which is currently the 10th largest economy in the world. In 2009, the Canadian economy was larger than that of India at $1.57 trillion. In 2010, the Indian GDP grew to $1.66 trillion whereas that of Canada was at $1.61 trillion. India overtook Canada to become the ninth largest economy in the world.

The broader point here is that even in the non-Modi years, India was becoming bigger than the other big economies in the world. This isn’t a trend that has happened only in the last five years, as is often projected. In general, in the aftermath of the financial crisis which broke out in 2008, the pivot of global growth has moved from the Western world, in particular Europe, to Asia (not including Japan). In fact, many European countries have barely grown in the last decade. Take the case of France. The French GDP in 2007 was $2.67 trillion. In 2017, the GDP was $2.86 trillion. This meant a growth of 0.7% per year on an average. The UK has done slightly better with the GDP jumping from $2.52 trillion to $2.81 trillion between 2007 and 2017, at the rate of 1.1% per year.

Given this, if things go as per trend, it is safe to say that by 2020, India will overtake both France and the UK to become the fifth largest economy in the world.

When it comes to economic size, the UK’s GDP at $2.81 trillion is closest to that of India’s GDP at $2.63 trillion. The population of the UK in 2017 was 66 million. The population of India in 2017 was 1.34 billion. The British population is around 4.9% that of India’s population and is able to produce a GDP which is 6.8% more than that of India. This basically means that the British population is a lot more productive and a lot richer. This is basically the metric which we should be looking at.

The per capita income of the UK in 2017 was at $42,514 and that of India was at $1,965. Hence, the British per capita income was many more times the Indian per capita, even though their GDP is marginally more than that of India. Take a look at Chart 3 above, which lists the countries with the 10 highest per capita incomes in the world, along with that of India and China. At $1,965, India has the 147th highest per capita income in the world. China is at the 86th spot with a per capita income of $7,329. This is the metric that we should be talking about, but we aren’t.

Myth 3: India is world’s fastest growing economy

Another claim that has been made over the years that India is the fastest growing economy in the world. Let’s take the case of 2017. India was the 24th fastest growing economy in the world; China was at 19th position. As mentioned earlier, in 2018, IMF expects India to grow faster than China.

Of course, smaller countries can grow faster than larger countries given that they have a low base. What if we were to restrict the sample only to those countries which had a GDP of more than a trillion dollars in 2017? How would things look then? In 2017, there were 16 countries with a GDP of trillion dollars or more. However, China and India were the only trillion-dollar economies which ranked among the top 25 fastest growing countries in the world in that year.

How did things look in 2016? China grew slower than India at 6.7% and was the 23rd fastest growing economy in the world. India grew at 7.1% and was the 17th fastest growing economy in the world. Again, China and India were the only trillion-dollar economies to be a part of the top 25 fastest growing economies in the world.

And, what is the position in the years before 2016? Take a look at Chart 4. Between 2010 and 2017, there was only one occasion when a trillion-dollar economy (other than China) had grown faster than India. This was when Indonesia grew by 6% in 2012. During that year, India and China grew by 5.5% and 7.9%, respectively.

In other words, in terms of growth, India has been a consistent No.2 to China. This picture is changing now that the Chinese economy is slowing down.

The kind of global growth ranking India has seen in the last few years was also seen during 2007, 2009 and 2010. So, what is true during the Narendra Modi years was also true during the years of Manmohan Singh. The difference: India grew faster than China three out of four times between 2014 and 2017 and is expected to grow faster than China in 2018 as well.

Of course, the Chinese economy is 3.9 times the size of the Indian economy. China added economic growth that equals one-fourth of the Indian economy in 2017. This is a factor which normally gets ignored in the hullabaloo to present the Indian economy to be the fastest growing major economy in the world. But then any nuance that should be a part of economic analysis has more or less disappeared over the last five years.

Vivek Kaul is an economist and the author of the Easy Money trilogy.