The world is heading towards a recession. Apparently, nobody told India . As the West holds its head in its hands, India 's growth rate continues to break its own records.
The vast macroeconomic growth performance of China and India has been one of the most important events of the 21st century. Measured by Gross Domestic Product (GDP), which is the market value of all final goods and services, India is the 12th largest economy in the world. Therefore, India 's economy is around one-twelfth the size of the United States (US) and one-quarter the size of China . Yet, the rate at which the Indian economy is growing, together with its absolute size, suggests that by around 2040, the country should be the forth largest economy in the world.
China and India , with support from Russia and Brazil , constituted more than half of global growth in 2007. Many analysts had hoped that, amid the current financial market turbulence, these countries would serve as a second engine for global growth and prop-up the global economy. Unfortunately, the tentacles of the meltdown have been far-reaching and emerging market economies have been negatively affected.
Indeed, despite holding up relatively well at the outset, India 's economic prognosis is not entirely dislocated from the credit crunch and financial market turbulence, which originated out of the US in July 2007. It is a matter of fact that as most mature economies enter into (or are already in) a recession, India 's impressive growth trajectory will face headwinds from slowing external demand for its produce.
Fortunately, India 's dependency ratio on exports-to-GDP is amongst the lowest in Asia . Therefore, the upswing in the Indian economy has been driven primarily by the consumer as aggregate living standards improve across the country. More recently, the economy has been supported by the sizable infrastructure programme. Clearly, it would be a mistake to attest that the slowdown in India is due to the credit crunch.
The inevitable deceleration should not over-shadow the impressive reforms that India has undergone in recent decades. Since the mid-1980s, successive reforms have progressively moved the Indian economy towards a market-based system. State intervention and control over economic activity has been dramatically reduced as the proportionate role of private-sector entrepreneurship increased.
To varying degrees, liberalisation has touched on most aspects of economic policy including industrial policy, fiscal policy, financial market regulation, and trade and foreign investment. In the process, after experiencing decades of what became known as the “Hindu rate” of growth, which hovered around 3% per annum, it seems as though India has indeed shifted to a higher, yet sustainable, long-term trend growth of above 7% per annum.