India’s proclaimed growth rate of 7.5% is inaccurate, but growth good: US State Dept.

Annual report commends Indian Govt.

AB Wire

India’s proclaimed growth rate of 7.5% is slightly off the mark, but the country is on a good path to growth, surmises a report by the US State Department.

The annual review of the Indian economy and the general view is that things are getting better but then again, could be better than that, reported Forbes, analyzing the State Department review.

The essential point being that the reforms both proposed and undertaken by the Modi government are welcome improvements but there could both be more done and more actually implemented rather than just proposed. The 7.5% annual GDP growth rate might be a little more than is actually happening but in general, good things are happening.

Underlining that India’s 7.5% growth rate may be “overstated”, the US has said the Narendra Modi government has been “slow” to match its rhetoric in economic reforms even as it appreciated measures taken by it in areas like bureaucracy and easing FDI restrictions.

“Doing well but could do better” is one way of paraphrasing the report. But it’s not actually obvious that things could be going faster. India is odd (no, not odd as in bad or anything, just odd as in different) in that it’s very much a democracy and also still, out there in the rural areas, very poor. This isn’t really a set of circumstances that we’ve seen before. This rather puts a brake on any autocratic measures to untangle the former governing system, said Tom Worstall, a Contributor for Forbes.

The report said that the Indian economy was restricted because of conflicting rules and a complex bureaucratic system.

“India has a decentralised federal system of government in which states possess extensive regulatory powers. Regulatory decisions governing important issues such as zoning, land-use, and the environment vary between states. Opposition from labor unions and political constituencies slows the pace of land acquisition, environmental clearances, and investment policy,” it said.

“The Modi government has prioritized economic growth to fulfill its electoral promises and to address the Indian electorate’s high expectations. Initially, the government focused on streamlining bureaucratic decision making and raising FDI limits in certain sectors—including defense and railway infrastructure. Modi also called for foreign and domestic companies to support his signature initiative, “Make in India”—a branded campaign to attract international capital to the country’s struggling manufacturing sector. He also set a goal for India to rise rapidly in the World Bank’s Ease of Doing Business rankings. The government has continued to relax FDI restrictions in a wide variety of sectors as part of the government’s efforts to further open the economy. Most recently, the government approved up to 100 percent foreign investment in civil aviation, defense, certain sectors of e-commerce, and the pharmaceutical sector. Additionally, the government eased requirements for some retailers to source “state-of-art” technology in India could be particularly beneficial to high-tech companies such as Apple AAPL +0.55%, although underlying supply chain constraints remain,” Worstall noted.

“However, the government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through Parliament.

That pesky democracy thing. However, not that it should be necessary to say this, the democracy is more important than the extra growth which an autocracy might be able to produce. Quite apart from anything else economic growth itself leads to a demand for more democracy so those autocratic systems don’t actually work for long. Thus Modi and India are left with the long hard slog of doing things piece by piece and attempting to persuade rather than insist about the necessary economic reforms. All of which are really getting the government to retreat to those things which must be done and leaving alone those things which either need not be or are better done not by government,” he added

The full State Department report is here.