Reality check: Mr FM, India is not the world's second fastest growing economy

Finance Minister P Chidambaram is a man with several admirable qualities. He is certainly not one to throw in the towel. The economy may be spluttering but he’s determined to talk it up. After spending several weeks wooing investors abroad, Chidambaram has embarked on Mission Feel Good at home. He wants India to believe that things are not as bad as UPA has made them. He wants us to believe that in comparative global terms, India is still shining. In his Lok Sabha constituency, Sivaganga, he said yesterday, “People should remember India continues to be the second fastest growing economy after China.” The statement may yet have been consolation for some, but only if it was true. India is not the second fastest growing economy in the world.

In fact, in the calendar year 2012 (most of the world uses a January-December calculation rather than an April-March calculation like we do) India was only the 34th fastest growing economy in the world despite registering an overall growth rate of 6.5 percent . China, which grew at 7.8 percent was ranked 20th. Even if you leave aside outliers like Libya and Afghanistan (war-torn countries where measurements may not be reliable), the fact is that 14 Sub-Saharan African countries, including Ghana, Burkina Faso, Rwanda and Ethiopia grew faster than India.

[caption id=“attachment_994397” align=“alignright” width=“380”] AFP[/caption]

Of course, it is reasonable to argue that a major economy like India is not comparable to much smaller economies. But the UPA is quite happy to be bunched with these very same countries when it comes to measuring poverty. Union HRD Minister Shashi Tharoor has been busy peddling the UN/World Bank International Poverty Line of $1.25 dollar per day, which he says according to purchasing power parity works out to around Rs 30 per day, very similar to the Planning Commission line. But surely, Mr Tharoor, when the Government doesn’t want to draw comparison with the poorest countries in terms of growth, should the Government be doing so with poverty?

Unfortunately, Chidambaram would be wrong even he were to say that India is the second fastest growing major economy in the world after China. For the quarter of January-March 2013 (the most recent available to make a comparison), Indonesia, definitely a major economy, grew at 6.1 percent to India’s 5.3 percent. Chile, arguably another major economy, grew at 5.6 percent. Chidambaram made much of the fact that Mexico and Brazil were way behind India. He’s right. But he didn’t mention that a struggling Argentina almost matched India with a growth rate of 5.2 percent and that even a crisis hit Egypt registered a growth of 5.2 percent.

The Finance Minister’s smoke and mirrors does not end with that. The incessant comparison with China is also misleading. The fact that China has seen a drop in its growth rate from around 10 percent to around 7.5 percent is not comparable in any way to India declining from 8.5 percent to 5 percent. For one, the quantum of India’s decline is a one percentage point greater. Second, China is far more dependent on exports to Western markets than India is, so the argument about being affected by the global slowdown should have hurt China more than India. Third, China has already reached a per capita income of $6,000 while India’s hovers around $1,600. Once countries reach middle income status like China has, growth tends to taper off a little. In India’s case, with its still low level of per capita income, the potential for higher, possibly double digit, growth is much greater.

The comparisons he makes with the West are laughable. At their levels of per capita income, a growth rate of 3 percent percent annum is very impressive. So, a fall to zero or minus one is quantitatively a similar fall from India’s 8.5 percent to 5 percent. India may still have a positive rate of growth but the sudden collapse has created an almost recession-like situation. Businesses are hurting. Consumers are in pain.

The reality is that India’s economy is in a pathetic state. So don’t believe any foggy global comparisons Chidambaram is selling to bolster the electoral fortune of his Government. The illusion is only delusion.