India’s economy stuck short of escape velocity

India’s official statisticians reported 13.5% growth in the April to June quarter of this year. This meant that the country whooshed into top place as the world’s fastest-growing large economy — and, incidentally, replaced Great Britain as the world’s fifth-biggest economy.
Unfortunately, that’s where the good news about India’s growth prospects ends. Those GDP numbers were actually a disappointment, given that the same quarter last year saw India shut down amid its devastating Delta-driven Covid wave; a Bloomberg survey of economists expected growth in excess of 15%.
Over the past three years, in fact, GDP in India has grown just over 3% — and less than 4% since the last quarter before the pandemic. This financial year — which will end in March 2023 — is unlikely to break any records: Most now expect that real growth will not reach 7% even off a low base.
If you look for reasons to be optimistic, you can find them. For
example, capacity utilisation in Indian manufacturing recently hit 75%, the highest it has been for almost a decade. Some economists hope that this means that the problem plaguing the Indian macro-economy for the past decade — anemic private sector investment — will stop being a constraint on growth. Yet investment figures as a percentage of inflation-adjusted GDP continue to be under par, 2.5 percentage points below what they were prior to the pandemic.
Some Indian officials think that the return of high investment and growth is only a matter of time, and that positive policy changes over the past few years — from the reform of indirect taxes to new industrial policies that focus on domestic manufacturing — will bear fruit in the medium term. But we’ve heard that line before, multiple times.
If it hopes to return to a high-growth trajectory, India simply can’t afford to give in to complacency. Something crucial is still missing in the country’s policy mix: a proper understanding of what investors really need. In a world of rising interest rates and risk-off sentiment, there still aren’t enough investible projects available in India with the right risk-return profile. A lot of capital continues to flow into India but mainly from risk-tolerant sources such private equity, or toward companies believed capable of managing political risk such as Adani Enterprises Ltd.
The companies that support job increases and broader economic growth — smaller enterprises or those in the infrastructure sector,
for example — don’t get as much of a look.

—Bloomberg