(LiveMint)
The second Narendra Modi government has begun its innings in the midst of a sharp economic slowdown. Economic expansion in the fourth quarter of the previous financial year was at the lowest level in five years—and 2.2 percentage points lower than growth in the first quarter of that year. The recent loss in economic momentum will obviously be the dominant concern for new finance minister Nirmala Sitharaman as she puts the finishing touches to the Union Budget that is due to be announced on 5 July. However, there are also deeper structural challenges that cannot be met with either fiscal or monetary stimulus to target aggregate demand.
The Indian economy is doing well if one makes a comparison with other major economies at this point of time, unless the recent slowdown deepens. That has led to a sense of premature hubris. The current economic momentum is less impressive when compared to the growth rates maintained by countries such as China or South Korea when they were at a similar stage of development. Average incomes in South Korea went from $2,180 in 1983 to $4,686 in 1988, i.e. in five years. Chinese average incomes rose from $1,966 in 2004 to $4,604 in 2008, i.e. in six years. On the other hand, Indonesia took 12 years to double its per capita income once it crossed the $2,000 threshold in 2007.
