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India Overtakes China's Economic Growth

By | Dec 01, 2015 04:15 PM EST
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Trapped in Poverty

The latest GDP figures present a cheerful picture of India's economy, but some analysts warn that the numbers are misleading. Many of India's farmers, here seen clearing a cotton field in Sunna, live under conditions that approach extreme squalor. (Photo : Getty Images/Uriel Sinai)

India outpaced China's economic growth over the third quarter as increased domestic demand and a strong manufacturing sector brought renewed vigor into the country's gross domestic product (GDP).

India's economy expanded by some 7.4 percent between July and September, mostly behind bullish spending and increased activity in the manufacturing industries. The latest figures have China's economic growth over the same period at 6.9 percent.

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Experts attribute the unexpected spike to a decrease in commodity prices after the Reserve Bank of India cut interest rates by half a percentage point.  The decreased rates in turn reduced the price of heavily purchased commodities such as fuel and gold, according to the BBC.    

The bank is expected to hold rates steady in an effort to control prices in anticipation of tighter inflation targets in 2016.

The latest economic figures offer an encouraging outlook for India's economy.  Some analysts, however, insist that the country's GDP numbers are misleading, as other economic indicators conjure a less than rosy picture.  

Reuters reported that indices measuring the country's bank credit growth, jobs and consumer demand actually reveal that India's economy is not at full strength at the moment.

The country's all-important agriculture sector has been devastated by an extended drought, reducing overall farm output and jeopardizing the livelihood of at least 650 million workers. 

The country's export sector has also been hobbled. India's exports fell by some 17.5 percent year-on-year in October.  The decline marked 11 consecutive months of lackluster performance, and forced the government to step in to offer exporters subsidized credit.

These setbacks have been creeping up on India's economy all along. Growth in private consumption actually slowed to 6.8 percent over the second quarter, down from the 7.4 percent increase recorded between January and March.    

Analysts warn that India needs investments to achieve more meaningful economic expansion. If investments are not forthcoming, they warn, then India's sputtering economy is likely to suffer more apparent setbacks.  

This is not lost on Prime Minister Narendra Modi, who won a landslide victory during the 2014 elections behind a campaign that promised much-needed economic reforms.  

The prime minister had earlier overseen massive public expenditures in infrastructure to stimulate economic growth and afford a counterpart to private investments. This has led some to speculate that the recent growth in India's domestic demand is more likely explained by increased public spening rather than private consumption.  

Modi knows that much of India's growth over the next few quarters will depend on his proposed reforms.  He hopes, for instance, to convince his political opponents to move forward on a much-delayed national sales tax next year.

But analysts note that Modi has so far fallen short on more important reform goals.  Poverty is on the decline, true; but the government has been unable to dismantle the legal and regulatory barriers that have kept millions of India's entrepreneurs trapped beneath the poverty line.  Around seven percent of India's rural folk still live under conditions that approach extreme squalor.

The prime minister likewise suffered a telling loss of face last month when he failed to lead his ruling Bharatiya Janata Party (BJP) to victory in a bitterly contested vote in India's impoverished Bihar Province.    

With his government reeling from scandals and his political capital waning, many now question whether Modi will be able to see his economic reform agenda to full frutition.

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