India's economic slowdown also a lesson for Bangladesh

At present, it is noteworthy to recall two articles with contrasting headlines on India's economy published in The Economic Times on the same day 15 years ago.

The headline "The Indian economy is shining and shining" of one article published on August 1, 2005 painted a rosy picture of the growth.

That was popular sentiment in India back then. Many domestic policymakers and international observers praised the headline on high growth numbers.

Indian economy was doing well then. During the 2002-11 period, Indian economy grew at an average 7.5 percent on the back of strong investment growth and export growth. It was recognised as one of the fastest growing economies in the world.

The second headline "Indian economy: is the upswing built on sand", however, held a contradictory view over the growth data on the same day.

 The second article focused on the number of risks the Indian economy was exposed to. It questioned the sustainability of the growth.

Fifteen years down the line, the fear in the second article came true: the economic upswing was largely built on sand.  

Indian economy was hit by a series of shocks between 2011 and 2016 and growth started falling.

Now everything is clear. Indian economy is facing a slowdown. A fall in consumption, lack of private investments, sluggish exports, abnormal rise in unemployment and bad loans are among the reasons being blamed for a slower GDP growth, which slid to a six-year low of 4.5 percent in September.

A few months ago, former Chief Economic Advisor Arvind Subramanian sparked a strong debate over the growth data by claiming that Indian economic growth might be overestimated.

He has reinforced those doubts by claiming that economic growth for the period between the financial years 2011-12 and 2016-17 was exaggerated. While official estimates put it at 7 percent, he pegs the "actual growth" at about 4.5 percent.

Arvind faced huge criticism from the Modi government policymakers for his remarks. But the current shock provides substance to his claim.

The slowdown, according to some economists, is not ordinary.  

In Subramanian's view, the Indian economy was headed towards an "intensive care unit" and that a "Great Slowdown" was imminent.

Arun Maira, a former member of Indian planning commission, says Indian economy's engine of growth is now sputtering.

"The future of India is being wasted. India lags poorer countries behind in human development. Millions of youth are unemployed, their aspirations are turning to frustrations," he notes.

The jobless rate jumped to a 45-year high of 6.1 percent in 2018. Back in 2014, the Modi government promised to bring "good days" to a young, restless population. But the government data shows the promise remains a far cry.

Days before the economist Abhijit Banarjee won the Nobel Prize last month, he said: "It's a crisis. People are poorer now than they were in 2014-15."

Ashoka Mody, a visiting professor at Princeton University's Woodrow Wilson School also hints that tougher times are ahead for the Indian economy.  

In his view, there are no easy fixes. "India will need at least a generation to build necessary human capital alongside safer and more productive urban spaces. Or else, we will be looking down an abyss."

The Modi government's dream of achieving $5 trillion GDP by 2024 from about $2.7 trillion is now facing a gloomy reality.

A Bloomberg analysis says if Modi wants to make his pledge to turn the country into a $5 trillion economy, India needs its economy to expand at a 9 percent to 10 percent pace for a sustained period of time.

But this means India has to double its current growth. It is a Herculean job for the Modi government embroiled in political turmoil over the citizenship law.  

International Monetary Fund's Chief Economist Gita Gopinath sounded doubtful about the chances of India achieving the target.

The Modi government is taking different measures to boost the economy. But it will take time to harvest the benefits.

The economic slowdown has already triggered fears that India is walking towards a phenomenon where rapidly growing economies graduate to the middle-income tier but later become stagnant.

An economy fails to transit to high-income levels for a variety of reasons, especially a failure to build institutional, human and technological capital.

The Indian economic slowdown offers food for thought for other economies, including Bangladesh, that are growing fast but the quality of the growth faces risks.

The growth face vulnerabilities for a variety of reasons like lack of job generation, slump in private investment, troubling rise in inequality and shady banking sector.  

The Indian example indicates that economic upswing cannot be sustainable unless those risks are properly addressed. Only fast economic growth cannot provide long term comfort.

For long term economic benefit, the quality of growth must be ensured through various measures including fighting inequality, generating employment, ensuring the flow of private investment, smooth export growth and a sound financial sector.