Worry about the trend, not the cycle

Our institutional capacity to support trend growth has not stayed the pace

It is useful to decompose macroeconomic outcomes into long-term trends vs. short-term business cycle fluctuations. In the Indian story, there was a decline in trend growth in about 2011-12. Layered on top of this, we have had a decline in business cycle conditions. These two phenomena are playing out together today. The conventional tools of macroeconomic policy are feeble in India, in the best of times, and cannot make a difference to the decline in trend growth. The most important question in Indian economics is that of understanding, and reversing, the decline in trend growth.

Gross Domestic Product (GDP) measurement in