The Chinese dragon is making way for the Indian tiger.
Released earlier this morning, India's GDP figures confirmed the country's position as the fastest growing large economy. According to the country's Central Statistical Office, India recorded GDP growth of 7.3% last year and is expected to grow by 7.6% this year. In contrast, China's GDP grew by 6.9% last year and is expected to slow down this year as its economy is wracked by multiple economic concerns, ranging from a slowdown in demand to capital outflows due to a depreciating yuan. This is not the first time that India has overtaken its neighbor. According to the IMF, this event happened in 1981, 1989, 1990, and 1999.
Manufacturing turned out to be the big winner amongst all sectors in recording growth last year. According to government statistics, it grew at a rate of 12.6 percent. On the other hand, agriculture contracted by 1 percent.
India's Prime Minister Narendra Modi has made a number of trips abroad to promote the country's manufacturing capabilities and has unveiled a special program called "Make in India" to attract foreign investors. The government has also committed itself to generating 100 million manufacturing-related jobs and increasing manufacturing's total share of India's economy to 25%. (Read also, Emerging Markets: Analyzing India's GDP.)
Doubts About GDP Growth
Even as expectations are for India's economy to power world growth over the next decade, doubts abound about its growth figures. For example, several economists questioned the government's official figures for manufacturing growth. "The data looks difficult to correlate," said Shubhada Rao, chief economist at YES Bank, a Mumbai-based bank, in an interview with Reuters. She was referring to indicators such as corporate order books and inventory ratios that do not square up with the government's assessment of the sector.
The "Make in India" campaign has been touted in the press but has not resulted in tangible gains so far. In fact, according to some assessments, it is still mired in bureaucratic problems. Similarly, its capital inflows have only improved marginally last year.
"No matter how you cut it, while there are certain segments of the economy holding up such as IT or e-commerce, large parts of the economy are actually slowing down,” said Ritika Mankar Mukherjee, an analyst with Ambit Capital. The IMF has predicted GDP growth figures of 7.5% for India next year. (See also, These Will Be the World's Top Economies in 2020.)
The Bottom Line
For years, India plodded along with low growth. After liberalization in 1991, however, the country's economy has picked up steam. The question now is whether the Indian Tiger will be able to pick up the slack in a depressed global environment.