Prime Minister Narendra Modi has been having a tough time lately, with his party losing a big election in the populous state of Bihar and intellectuals, artists, and a major Bollywood star speaking out about a climate of “growing intolerance.” Yet despite these setbacks, India’s economy grew at an annualized rate of 7.4 percent in the last quarter, improving on last year’s 7 percent growth in the same period. The BBC:
Higher domestic demand and manufacturing activity fuelled the pace, taking the rate of growth above that of China.
India’s central bank is meeting to set the level of interest rates on Tuesday.
Last month it cut rates by half a percentage point to 6.75%.
India’s economy has benefitted from a fall in commodity prices, which have made imports of heavily bought-in goods such as fuel and gold less expensive.
India’s growth has recently been outpacing China, which is growing at a rate of 6.9% according to the latest figures.
Exogenous factors—low commodity prices—and competent monetary policy stewardship by University of Chicago and IMF veteran Raghuram Rajan appear to account for most of that success. Meanwhile, many of Modi’s more ambitious reforms, like his proposal to unify India’s 29 states under a national sales tax, remain stalled in parliament.
The editorial board of Bloomberg View is encouraged by Modi’s less controversial plans to reform India’s complicated and “dysfunctional” bankruptcy law, which they think ought to be able to pass muster with the opposition. And it looks like Modi’s administration plans to privatize several loss-making state-owned companies—another smart move that may be difficult for obstructionist parliamentarians to gum up.
India has a lot going for it, as evidenced by its strong economic performance amid both a darkening global outlook and domestic political gridlock. Should Modi manage to clear the impasse domestically, India’s economy could grow even faster. Yet thus far, even with all his early popularity, he has not been able to get his ambitious agenda through. And his Hindu nationalism, though helping galvanize his supporters, has otherwise driven the country apart and failed to generate any kind of sense of national purpose. Can he improve on his early record? The degree to which he succeeds will likely determine his legacy.