There is a sudden interest in the phrase ‘Hindu rate of growth’, coined by Prof Raj Krishna in the late 1970s. This is because former RBI governor Raghuram Rajan said in a recent interview that recent trends in the Indian economy’s growth rate indicates that the country is ‘dangerously close’ to the Hindu rate of growth.
Rajan’s observation was related to sequential slowdown in quarterly GDP growth
Rajan’s observation was related to the sequential slowdown in the quarterly GDP growth. According to reports, the ex-RBI governor stated that the sequential slowdown in Q3 was worrying. A key takeaway of the National Statistical Office (NSO) data was that India’s GDP growth rate for the quarter ending December 2022 slowed to 4.4% from 6.3% in the June-September quarter. For Q1 of the current fiscal, Indian economy grew by 13.2%.
As expected, Rajan’s word of caution triggered criticism and sharp reactions from many quarters. But primarily, there have been two contrasting responses: one, the ex-RBI governor’s claim is incorrect and alarmist; and two, Rajan’s claim is not without statistical evidence. Some economic experts associated with the government like the current Chief Economic Advisor argued that if the data for the previous financial years — 2020-21 and 2021-22 — had not been revised upwards then the growth rate could have been higher. Rajan’s concern was specifically in relation to the slowing growth from the strong numbers in the first half of the current fiscal and the RBI’s projection of an even lower growth of 4.2% for the last quarter.
“Ill-conceived, biased and premature"
A report released by the State Bank of India has also debunked arguments that India is dangerously close to the Hindu rate of growth, saying such statements are “ill-conceived, biased and premature”. The report claimed that the incremental capital-output ratio has fallen, indicating that lower doses of additional capital resources would be required to produce one additional unit of output. Hence, there could be more output produced with lower addition to capital stock through private investment. If that is indeed the case, as claimed by the SBI report, the capital cost of production would be lower. However, this is yet to be seen.
Quarterly GDP growth rate tends to be volatile
Economists have said that quarterly GDP growth rate tends to be volatile and cannot be used to label growth. Also, by using the Hindu rate of growth phrase, Rajan commented on quarterly growth numbers, while the phrase was used in the past to refer to annual growth. Rajan’s remark may be a bit premature, given that it is based on Q3 growth rate and projection of further lower growth in Q4. But he is right to be worried about prospective growth slowdown, given the RBI’s aggressive rate hikes, slowing consumption demand, subdued private investment, and challenging external environment. His concern may not be completely unwarranted if one also looks at the quarterly growth rate since Q1 of FY 2018-19, which brings out the broader point of a steady deceleration in growth.
While for now being overtly critical of the growth rate is unwarranted, there is also no case for overreaction either. But unfortunately, some critics accused Rajan of living in the past, out of tune with changed economics and linking a slow growth rate to Hinduism. India may have left behind the Hindu rate of growth but the term was used by late economist Raj Krishna to link the Hindu philosophy of being minimalistic, non-competitive, and content with the Indian economy’s slow growth rate between 1950s to 1980s. During this period, the Indian economy averaged around 3.5%, while per capita income averaged 1.3%. However, he termed the low growth situation to be a result of socialist policies, which put public welfare above growth while the advanced nations were trying to boost growth through capitalist policies.
Hindu growth rate
But the Hindu rate of growth is often regarded as a derogatory phrase concerning India not being able to meet its economic potential. Many economists, over the years, have also opposed the idea of the “Hindu growth rate”, and the term has never had universal acceptance, more so in the post-1991 era when India embraced liberalisation, privatisation, and globalisation. Since then, things have changed significantly and the Indian economy has been growing at a decent rate, with intermittent episodes of higher and lower growth. While the economy plunged into a technical recession in FY2021 due to the impact of Covid-19 and the related lockdown, GDP decline started to narrow in subsequent quarters due to spurt in economic activities.
But the fact remains that even before the pre-Covid period, India’s growth curve showed a declining trend – from 8.26% in FY17, GDP growth plunged to 3.74% in FY20. Covid made matters worse in the subsequent fiscal and in FY22, after the initial spurt mainly on account of low base effect, growth came down to 4.10% in the fourth quarter. Fresh economic challenges came in the form of the Russia-Ukraine war in FY23, which impacted growth in almost all major economies of the world and pushed inflation to record highs. As a result, central banks of all advanced economies raised interest rates to curb soaring inflation, which remains high.
Since the release of NSO data, another point of debate has been the claim that India’s per capita income almost doubled from Rs 86,647 in 2014-15 to Rs 1.72 lakh in 2022-23. But the point to note here is that the rise is only in nominal terms and does not indicate doubling of the purchasing power of people. If adjusted for inflation, the real rise in per capita income between 2014-15 and 2022-23 is closer to 35% at constant 2011 prices. When we apply the same logic, it is interesting to note that in the period between 2006-07 and 2014-15, the nominal per capita income under the UPA government rose from Rs 33,717 to Rs 86,647, an increase of 157%, against 98.5% under the Modi government.
Another point of contention in the rise in per capita income is the distribution of income in the country. The per capita income is only a statistical measure and hides unequal distribution of incomes and wealth. In a country where income distribution is very unequal, more than 90% of the population would be earning less than the average per capita, while the remaining 10% earn much more than that.
The writer is a senior independent Mumbai-based journalist. He tweets at @ali_chougule
