“Economic Growth in India: Trends and Cycle” by Dr Ila Patnaik

India: Growth and prospects

Ila Patnaik

National Institute of Public Finance and Policy

Ila Patnaik (NIPFP) India: Growth and prospects 1 / 36

GDP outlookTwo components of GDP growth

Long term growthRecent slowdown


Cycle around trend


Part I

Long term growth


Drivers of long term trend GDP growth

Labour : A young demographic, with growing human capital.Capital : Capital stock has grown steadily.Productivity : Numerous micro-economic drivers of productivity.


Part II

Labour


Quality and supply of labour

QualityYear Literacy rate Years of schooling1980 41 1.91990 48 3.02000 61 3.62010 69 4.42014 72.1 (estimated) 5.4

1 Source: Years of schooling UNDP, Human Development Report2 Source: Literacy rate: World Development Indicators: Defined as percentage of population age 15 and above

who can, with understanding, read and write a short, simple statement on their everyday life.

Supply: The working age (15-64) population has been rising and iscurrently at 65% of the population.


Labour quality will improve

Rapid improvement in literacy70 percent of the work force is literate.10 percent workers are graduates.In the next decade

1 Everyone entering the labour force will be literate.2 20 percent of entrants to the work force will be graduates.


Literacy will improve

1990 2000 2010 2020

5060

7080

9010

0

Lite

racy

rat

e (%

)

AllFemale


More literate workers can follow written instructions


High School educated will increase

1990 2000 2010 2020

510

1520

25

Hig

hsch

ool r

ate

(%)

AllFemale


High end scientific and technical labour force


Better health improves labour productivity

Health status of population has been improving.Infant Mortality Rate (IMR) in India declined from 88 per 1000 livebirths in 1990 to 39 in the year 2015.Maternal Mortality Rate (MMR) has declined from 600 per 100,000live births in 1990 to 174 in the year 2015.


Part III

Capital


Comparing India’s growth in capital stockIndexed to 100 in 1991, India outperforms its peers

1995 2000 2005 2010

5020

010

0050

00

Inde

x

Growth in capital stockIndiaBrazilGreat BritainJapanMexico

Source: World Development Indicators 2012Ila Patnaik (NIPFP) India: Growth and prospects 15 / 36

All projects under implementationValue of projects under implementation has been rising

20

40

60

80

100

Rs.

Tril

lion

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Apr−Jun 2017; 97.68


Addition to capital stock: Gross fixed assets of all largefirms

100

200

500

1000

Bill

ion

dolla

rs

Mar 1991 Mar 1997 Mar 2003 Mar 2009 Mar 2015

Mar 2016; 1063.83


Part IV

Productivity


Infrastructure growth


Infrastructure projects under implementation

10

20

30

40

50

60

Rs.

Tril

lion

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Apr−Jun 2017; 58.59


Urban transportationFeatures 11 cities

1995 2000 2005 2010 2015 2020 2025

0

500

1000

1500

2000

Kilo

met

eres

16.45

366.2

1965.462017−07−21

2002 to 2017: 350 km over 15 years: 23.3 km per year.Ila Patnaik (NIPFP) India: Growth and prospects 21 / 36

A sense of the future

The outlook on capital, labour, productivity is positive.Long term growth prospects are good.


Can we be complacent?


Part V

Current state of the economy


GDP growth


Slowdown in industrial productionYear-on-year growth

02

46

8

Y−

o−Y

cha

nge

(Per

cen

t)

Jun 2014 Jan 2015 Sep 2015 Apr 2016 Dec 2016 Jul 2017

May 2017; 1.72


Slight uptick in net sales of firms, but still subduedYear-on-year growth

0

5

10

15

20

25

Y−

o−Y

Gro

wth

(P

er c

ent)

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Jan−Mar 2017; 5.93


Slide in bank credit to commercial sectorYear-on-year growth

5

10

15

20

25

30

35

Y−

o−Y

Cha

nge

(Per

cen

t)

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Jun 2017; 6.71


Slump in under-implementation projectsQuarter-on-quarter growth

0

5

10

Per

cen

t

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Apr−Jun 2017; −0.77


Part VI

Will the investment cycle downturn affecttrend growth?


Gross fixed capital formationAs a percent to GDP

2012−03−31 2013−03−31 2014−03−31 2015−03−31 2016−03−31 2017−03−31

Per

cen

t to

GD

P

0

10

20

30

40


Gross fixed capital formationYear-on-year growth

2013−03−31 2014−03−31 2015−03−31 2016−03−31 2017−03−31

Per

cen

t

0

2

4

6

8

10


Projects announced by private sector (Levels)

10

20

30

40

Rs.

Tril

lion

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Apr−Jun 2017; 24.57


Concerns

Tax rates and tax administrationPermissions, licenses, red tapeLaw and order, courts, enforcement, corruptionPolicy uncertainty


Conclusion

India has good long term growth prospects.There a currently a cyclical downturn in investment.If the investment downturn persists, it can impact long term capitalstock and growth.The policy framework for supporting investment needs to beimproved.


Thank you


“Economic Growth in India: Trends and Cycle” by Dr Ila Patnaik

Economy & Finance