India GDP Growth at 5.3% Falters Badly

India’s Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation released its preliminary estimates of GDP growth for the calendar third quarter. The improvement was abysmal, for India, at 5.3% over the same quarter in 2011. The bureaucracy of the central government gets much of the blame. It has hurt the economy because, among other things, it keeps many foreign nations out of the country to protect local businesses. But the explanation is not that simple, nor are the expert opinions about how the slow rate will hurt the rest of the economic world.

The Indian economy is larger than many people suppose. With a gross domestic product of $4.4 trillion, it is larger than Germany and nearly as large as Japan. India could take the number three spot next year, behind only the United States and China. But GDP per capita, at $3,700, is obviously low because the population is above 1.2 billion people.

India’s economic foundation has two major components. One is its ancient agriculture business. Most of the fruits of this production remain inside India to feed and supply its huge population. The second sector that helps drive the economy is services, and much of this sector is based on exports. The CIA Factbook points out that:

[S]ervices are the major source of economic growth, accounting for more than half of India’s output, with only one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services and software workers

Slowdowns of the businesses that use these services in the United States, United Kingdom, Japan and the European Union have crippled India’s growth in the tech sector. Unless an unexpected rebound occurs, India’s economy probably will slow further. That, in turn, will make it hard for India’s $3,700 GDP per capita to rise. India’s consumer economy will not become the engine that it is in the U.S., Germany and even China.

It would be naive to believe that the Indian government is entirely to blame for the country’s economic problems. Global growth problems should get just as much, if not more, blame.

Douglas A. McIntyre