Discussion of India’s Growth Story Dilip Mookherjee India Policy Forum July 10, 2018
Recap • Part 1 of the paper provides interesting facts pertaining to long term growth: acceleration, (reduction in growth volatility) • Comparisons with EM7; sustained, uniform across states
Recap • Part 1 of the paper provides interesting facts pertaining to long term growth: acceleration, (reduction in growth volatility) • Comparisons with EM7; sustained, uniform across states • Accompanied by rising investment, role of service sector, credit, trade, FDI, rising productivity growth
Recap • Part 1 of the paper provides interesting facts pertaining to long term growth: acceleration, (reduction in growth volatility) • Comparisons with EM7; sustained, uniform across states • Accompanied by rising investment, role of service sector, credit, trade, FDI, rising productivity growth • Traditional ‘structuralist’ factors (agricultural growth, domestic demand, public investment) seem irrelevant
Recap • Part 1 of the paper provides interesting facts pertaining to long term growth: acceleration, (reduction in growth volatility) • Comparisons with EM7; sustained, uniform across states • Accompanied by rising investment, role of service sector, credit, trade, FDI, rising productivity growth • Traditional ‘structuralist’ factors (agricultural growth, domestic demand, public investment) seem irrelevant • Also irrelevant: agriculture-industry reallocation; human capital growth
Recap, contd. • Part 2: Granular short term perspective (since 2007 and GFC)
Recap, contd. • Part 2: Granular short term perspective (since 2007 and GFC) • Theme somewhat at odds with Part 1
Recap, contd. • Part 2: Granular short term perspective (since 2007 and GFC) • Theme somewhat at odds with Part 1 • Three phases, growth pickup since 1991, unusually high growth 2004-08, slowdown with GFC and recovery thereafter
Recap, contd. • Part 2: Granular short term perspective (since 2007 and GFC) • Theme somewhat at odds with Part 1 • Three phases, growth pickup since 1991, unusually high growth 2004-08, slowdown with GFC and recovery thereafter • Slow down in investment, exports, credit quantity and quality; ‘structuralist’ factors more relevant
Recap, contd. • Part 2: Granular short term perspective (since 2007 and GFC) • Theme somewhat at odds with Part 1 • Three phases, growth pickup since 1991, unusually high growth 2004-08, slowdown with GFC and recovery thereafter • Slow down in investment, exports, credit quantity and quality; ‘structuralist’ factors more relevant • Suggests acceleration was one-time phenomenon, difficult to sustain in the years ahead
Initial Reactions/Questions • Long-term acceleration: sustainable or not?
Initial Reactions/Questions • Long-term acceleration: sustainable or not? • Of course, acceleration cannot be indefinitely sustained
Initial Reactions/Questions • Long-term acceleration: sustainable or not? • Of course, acceleration cannot be indefinitely sustained • Despite slowing down over the past decade, it has been hovering around 7% the last few years, almost double the pre-1990 ‘Hindu’ rate of growth
Initial Reactions/Questions • Long-term acceleration: sustainable or not? • Of course, acceleration cannot be indefinitely sustained • Despite slowing down over the past decade, it has been hovering around 7% the last few years, almost double the pre-1990 ‘Hindu’ rate of growth • Similar slowing down in China recently, tending to a similar average of 7-8%
Initial Reactions/Questions • Long-term acceleration: sustainable or not? • Of course, acceleration cannot be indefinitely sustained • Despite slowing down over the past decade, it has been hovering around 7% the last few years, almost double the pre-1990 ‘Hindu’ rate of growth • Similar slowing down in China recently, tending to a similar average of 7-8% • 7 percent growth rates maintained over a couple of decades is quite extraordinary by historical standards
Initial Reactions/Questions • Long-term acceleration: sustainable or not? • Of course, acceleration cannot be indefinitely sustained • Despite slowing down over the past decade, it has been hovering around 7% the last few years, almost double the pre-1990 ‘Hindu’ rate of growth • Similar slowing down in China recently, tending to a similar average of 7-8% • 7 percent growth rates maintained over a couple of decades is quite extraordinary by historical standards • Even as acceleration ceases, will growth rates stabilize for the time being (ie over the next decade or two) at around 7%?
Puzzles of India’s growth • Comparison with China raises to my mind one of the big mysteries regarding growth in India:
Puzzles of India’s growth • Comparison with China raises to my mind one of the big mysteries regarding growth in India: • In terms of the typical catalogue of determinants of growth, India seems to fall far short of China: • frictions/regulations in land and labor markets • weak governance (esp urban local government — grabbing hand rather than helping hand) • poor infrastructure • lower human development • lower rates of R&D (e.g., patent rates), spending on higher education/research
Puzzles of India’s growth • Comparison with China raises to my mind one of the big mysteries regarding growth in India: • In terms of the typical catalogue of determinants of growth, India seems to fall far short of China: • frictions/regulations in land and labor markets • weak governance (esp urban local government — grabbing hand rather than helping hand) • poor infrastructure • lower human development • lower rates of R&D (e.g., patent rates), spending on higher education/research • Both have weak judicial contract enforcement mechanisms
Puzzles of India’s growth • Comparison with China raises to my mind one of the big mysteries regarding growth in India: • In terms of the typical catalogue of determinants of growth, India seems to fall far short of China: • frictions/regulations in land and labor markets • weak governance (esp urban local government — grabbing hand rather than helping hand) • poor infrastructure • lower human development • lower rates of R&D (e.g., patent rates), spending on higher education/research • Both have weak judicial contract enforcement mechanisms • Yet, India achieves and continues to achieve growth rates not far behind China’s, and significantly higher than most emerging markets
Data Issues? • How credible is the growth data?
Data Issues? • How credible is the growth data? • Others have more expertise in this issue
Data Issues? • How credible is the growth data? • Others have more expertise in this issue • Some questions/remarks: • Changes in national income accounts since 2014: shouldn’t matter for the long run perspective, for growth rates or their acceleration
Data Issues? • How credible is the growth data? • Others have more expertise in this issue • Some questions/remarks: • Changes in national income accounts since 2014: shouldn’t matter for the long run perspective, for growth rates or their acceleration • Savings/investment data may be less reliable (residual in NI accounts, price deflation/aggregation issues)
Data Issues? • How credible is the growth data? • Others have more expertise in this issue • Some questions/remarks: • Changes in national income accounts since 2014: shouldn’t matter for the long run perspective, for growth rates or their acceleration • Savings/investment data may be less reliable (residual in NI accounts, price deflation/aggregation issues) • measurement problems in unorganized sector and services
Data Issues? • How credible is the growth data? • Others have more expertise in this issue • Some questions/remarks: • Changes in national income accounts since 2014: shouldn’t matter for the long run perspective, for growth rates or their acceleration • Savings/investment data may be less reliable (residual in NI accounts, price deflation/aggregation issues) • measurement problems in unorganized sector and services • increased transition from unorganized to organized sector may account for some of the acceleration?
Explanations for Acceleration? • The authors make no attempt made to fit any growth model to the data, nor do they provide any conceptual framework
Explanations for Acceleration? • The authors make no attempt made to fit any growth model to the data, nor do they provide any conceptual framework • Note that the key facts in Part 1 pertain to second derivatives (growth acceleration) and second moments (growth volatility) of GDP
Explanations for Acceleration? • The authors make no attempt made to fit any growth model to the data, nor do they provide any conceptual framework • Note that the key facts in Part 1 pertain to second derivatives (growth acceleration) and second moments (growth volatility) of GDP • Most growth theories deal with the first derivative — growth rates (mostly long run/steady state)
Possible Frameworks:Neoclassical Growth Models • Neoclassical growth models seem quite irrelevant, apart from pointing to importance of investment rates and productivity growth (Solow style growth accounting)
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