India bulls are ecstatic. According to revised gross domestic product numbers released earlier this week, the country will expand 7.4 percent in the year through March — on par with rival China. Never mind that most other indicators — from manufacturing to trade to corporate investment — seem to show that the economy is at best bottoming out, or that central banker Raghuram Rajan has himself expressed puzzlement over the revised figures. For optimists, India has once again reached that holy grail of emerging economies: “China-like” growth.
India has been here before, of course. So have dozens of other countries, from Brazil to Turkey to tiny Sri Lanka. At one point or another, all have posted growth rates above 8 percent, leading to predictions of a liftoff like the one that’s powered China for more than three decades. In most cases, those dreams have fizzled out within a couple years. Weak fundamentals, irrational investor exuberance and in some cases, credit or commodity busts quickly puncture fantasies of global dominance. By contrast, while its economy has begun to slow, China has grown an average of 8.5 percent for the last five years. Its Gini coefficient, a measure of a nation’s rich-poor gap, has improved in each of them.
Ironically, achieving China-like growth is often the surest way to lose it. Leaders fall prey to hubris and complacency, hyping all the factors that supposedly guarantee a long run at the top: young populations, abundant resources, the unwavering affection of investors. That overconfidence fosters drift and bad policy. Remember, during its first term, India’s previous Congress-led government also topped 8 percent growth. During its second, it focused on sharing the wealth through huge transfer programs rather than opening India to foreign investment, reducing red tape and deregulating fossilized industries. Growth, according the old formulas, slid below five percent.
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