India’s growth in the era of secular stagnation

Abstract

As one of the world’s fastest-growing and largest economies, India is showing growth momentum while advanced countries have long been suffering from secular stagnation and the recent China’s slowdown is also evident. In the context of the current economic juncture and global integration, this paper attempts to analyze such Indian growth dynamism and factors affecting it. In particular, this paper aims to investigate (1) the degree of synchronization in economic activities between India, the selected advanced countries and China, (2) the transmission channel focusing on trade, with a particular focus on China, and (3) sectoral growth and India’s manufacturing drive. It utilizes exploratory data and correlation analyses. The key finding is, firstly, India’s synchronization with the global economy has been deepening. The growth trend reaffirms the general perception that India exhibits high growth, whereas advanced countries experience continuous low growth. On the other hand, the cyclical growth shows that the Indian economy is experiencing weaknesses as are the advanced countries and Chinese economy. Secondly, India is closely linked with China via trade channels. It aided in deepening the dependency on China rather than promoting domestic production due to the high cost of capital and intermediate goods and lack of technology. Thirdly, the sectoral analysis indicates the weakness of manufacturing sector that is associated with declining investment and the lower profit margin. These findings suggest that India is exposed to both external and domestic weaknesses in driving its economic growth. Under such juncture, it needs careful monitoring whether India will be able to sustain long term growth impetus.