India's 10-year growth one of the biggest laggards in Asia, EM peers

A lower-than-expected decline in gross domestic product (GDP) during the September quarter might do little to the narrow the widening economic gap between India and its peers in Asia and other emerging markets (EMs).

After a decade of poor performance, India economy has become one of the biggest laggards in the Asia and among EMs, with the exception of Pakistan, Sri Lanka, and Indonesia. Between 2010 and 2020, India’s per capita GDP at current prices in dollar terms grew at a compound annual growth rate (CAGR) of 3.1 per cent against 9.2 per cent annualised growth in China, 7.9 per cent in Vietnam, 7.4 per cent in the East Asia & Pacific countries, and 3.3 per cent growth in major EMs, according to data from the International Monetary Fund and the World Bank.

The data for East Asia & Pacific, excludes high income countries such as Japan, South Korea, Taiwan, Hong Kong, Australia, and New Zealand.

In contrast, India was among the fastest growing EMs in the previous decade with annualised per capita GDP growth of 9.5 per cent in dollar terms. 

With a projected per capita GDP of around $1,900 at the end of the current calendar year, India remains one of the poorest countries among EMs with the exception of South Asian neighbours such as Nepal and Pakistan.

India’s eastern neighbour Bangladesh topped the growth chart and seems to be catching up with China. In the last 10 years, the country's per capita GDP (in dollar terms) has grown at a CAGR of 9.5 per cent. Experts attribute India’s poor performance to a series of external and internal shocks. “The decade started with the aftershocks of the 2008 global financial crisis that hit world trade and brought down growth in most countries. It was followed by European debt crisis and a collapse in commodity prices. Domestically, businesses were hit by demonetisation in November 2016, followed by the roll-out of GST and now Covid-19 lockdown,” says G Chokkalingam, founder & MD Equinomics Research & Advisory Services. According to him, all these shocks hit India’s foreign trade, investments and industrial demand, pulling down overall economic growth.

The data also suggests that while growth declined in most countries in the current decade compared with the previous one, the deceleration in India was among the sharpest with the exception of commodity exporters such as Indonesia.

Over the past 10 years, India’s per capita GDP is up 35 per cent cumulatively from $1,384 in 2010 to $1,877 now. In the same period, per capita GDP in China rose 141 per cent from $4,500 to $10,839, while it doubled in East Asian countries (excluding Japan, South Korea, Taiwan and Hong Kong) from $4,006 to $8,195.

Bangladesh saw the fastest growth with its per capita up nearly two-and-a-half times from $763 in 2010 to around $1,900 at the end of this year. And, Vietnam’s per capita rose 115 per cent from $1,628 to around $3,500.

As a result, the economic gap between India and its Asian peers, including China, is now bigger than 10 years ago. For example, the average per capita GDP in East Asia was 2.9 times that of India 10 years ago. Now, it is nearly four-and-a-half times that of India. Similarly, China’s per capita GDP was 3.3 times of India 10 years ago, which has widened to nearly 6x.

Many economists expect India to do better in the next decade. “We have a good chance of performing better in dollar terms over the next decade thanks to a better show by rupee in recently and a surge in forex reserves,” says Madan Sabnavis, head economist CARE Ratings.

However, it remains to be seen if the surge in dollar inflow can compensate for a slump in domestic investments, sluggish foreign trade, worsening public finances and India’s withdrawal from major trading blocks.