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India outpaces China as the World’s Fastest Growing Economy

India outpaces China as the World’s Fastest Growing Economy

India has reported that its economy grew at 7.4% in the third quarter. This makes it the fastest growing large economy on the planet: and more importantly to the Indian government, this means it is growing faster than the economy of China, their stated aim. The boost in growth came largely from manufacturing and services, an area where the country lags. The performance of the farming sector is still holding the country back though: that’s an area which will need much more reform if India is to match Chinese performance in the medium term:

India’s economy grew by 7.4% in the second quarter, official figures showed today, outperforming China and slightly ahead of analysts’ expectations.

Growth in the three months to the end of September quickened to 7.4% year-on year from 7% in the previous quarter, according to statistics ministry data.

The figures for the second quarter of the financial year were marginally higher than the median forecast of 7.3% in a survey of economists by Bloomberg News.

In more detail the figures are:

The country’s manufacturing output climbed 9.3% last quarter, up from 7.2% in the quarter ended in June, the data showed. Trading and hotel services growth slowed to 10.6% from 12.8% while financing and insurance services growth accelerated to 9.7% from 8.9%.

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Farm production remained sluggish at 2.2% growth, slightly higher than 1.9% the previous quarter.

There’s a certain contradiction in these figures. In the rich countries what the farming sector is doing is almost irrelevant in terms of the general economy. The entire sector in my native UK is worth perhaps 1% of the total economy. Manufacturing is also around 12% or so of it, making services the one hugely important sector. If services grow then in general the economy grows, whatever happens elsewhere.

In India, at a different stage of development, this isn’t really so. Farming is still the largest of the three sectors. Yes, it’s obvious that in the long term, to become a rich country, the sectoral sizes are going to have to change to match those of other rich countries. And fast manufacturing and services growth is obviously the way this happens. However, in the short to medium term what really determines the size of the total economy is the size of that agricultural sector. The monsoon probably matters more to growth in any one year than anything government does.

And it’s here that the comparison with China is perhaps the most important. The Chinese rural economy, pre-1978, was run on the most absurd Maoist manner. To make it boom all that had to be done was to remove the stupid restrictions, to allow the peasants to determine for themselves what they grew, how, and where they wanted to sell it at what price. India already has a largely free market in agriculture. But the infrastructure within which the industry works is still appalling. Roads, storage, financing, distribution and logistics, these are the things that need fixing. And that means either determined government intervention or, alternatively, a liberalisation into truly free markets of a form that India shows absolutely no taste for.

Monday, November 30, 2015
By: Forbes

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