SHINING India is back. At least that’s what many hyperbolic Indians would have you believe. With China’s economy slowing and its markets and

policymaking credentials upended, India is plausibly poised to take over as the world’s fastest-growing large economy.

Many Indians, deploying language that evokes the ‘India Shining’ campaign used when Prime Minister Narendra Modi’s Bharatiya Janata party was last in power a decade ago, see more than a glimmer of opportunity in China’s misfortunes.

Arun Jaitley, finance minister, said in an interview with the BBC: “An economy which can grow at 8 to 9pc like India certainly has viable shoulders to provide support to the global economy.” Adi Godrej, head of the eponymous consumer goods group, said it was a fine time for India to ‘shine’.

In one of the strongest ‘move-over-China’ remarks, Jayant Sinha, minister of state for finance, said Delhi was ready to ‘take the baton of global growth’ from Beijing. He chirpily told an audience in Bihar, one of India’s poorest and most benighted states: “In coming days, India will leave China behind as far as growth and development matter.”

On the face of it, there is room for optimism. As China seeks to wean itself off supercharged investment, its economy will inevitably slow. Officially, growth will glide down to 7pc this year. More likely, it could quickly head towards 5pc or below. India, meanwhile, is expected to expand at 7.7pc.

India’s statistics are as dubious as those of Beijing. And inflated growth breeds a false sense of security

Unlike many other emerging economies, including fellow Brics nations Brazil, Russia and South Africa, India has not been buoyed by exports of high-priced commodities. That means it will not be dragged down by the Chinese- induced commodities slump. Far from it. India, the world’s third-biggest petroleum importer, benefits greatly from weak oil prices, which improve its current account position and ease inflationary pressures. Nor is India a big exporter of manufactured goods. Even if global demand is weak, its economy is relatively insulated, with 57pc of gross domestic product coming from household consumption.

Yet the idea that India is poised to become the global economy’s main event is flawed to say the least. If it induces complacency, it is positively dangerous. Hopes that India can replace China as the engine of global growth are wide of the mark. In nominal terms — the most appropriate measure when judging an economy’s global impact — India’s output is one-fifth that of China’s. India makes up a mere 2.5pc of global GDP against a hefty 13.5pc for China.If China grew at 5pc annually, it would add an Indian-sized economy to its already hefty output in less than four years. Saying India can match this is like saying a mouse can pull a tractor.

On balance, people have read too much into China’s market spasms. Certainly, botched attempts to prop up the stock market and to move to a more flexible exchange rate have shaken confidence in the perceived infallibility of Chinese policymaking. Certainly, too, recent turmoil is symptomatic of a deeper malaise in the Chinese economy as it goes through the pain of shifting from investment-led to consumption-led growth. For China, the days of relatively easy catch-up have ended. Yet to write China off is badly misguided. It has the momentum of 30 years’ extraordinary expansion behind it.

The idea that India will effortlessly float above Chinese growth levels is hopelessly smug. India’s statistics are as dubious as those of China. People forget that only last February, India changed the way it calculated GDP, adding more than 2 percentage points to its headline growth rate. On the old measure, India is still limping along at a far from impressive 5pc.

Inflated growth breeds a false sense of security. That may help explain why Mr Modi’s government has been so slow to pass much-trumpeted reforms. In this session of parliament, almost nothing has been done. The prime minister has been unable to enact a goods and services tax, which economists agree would make it easier to do business across a diverse set of states. Faced with opposition from farmers, he has all but abandoned land reform, which would have made it simpler to build factories, roads and power plants. Doing business in India continues to be anything but easy.

While the country is relatively isolated from the world economy, that is partly because it does not make much that others deem worth buying. For a country that wants to be the manufacturing hub to replace China, that seems more like a weakness than a strength.

None of these problems will disappear because rather dubious statistics say India is growing faster than China. Indian officials would do well to stop gloating — and start enacting some meaningful change.

david.pilling@ft.com

Published in Dawn, Business & Finance weekly, September 14th, 2015

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