Attaining a growth rate of 8 percent or higher on a sustained basis will likely require contributions from all domestic sectors and support from the global economy.<sup>7</sup> It will require a concerted reform and policy momentum, wide enough in scope, that succeeds in reversing the slowdown in investment, credit supply, and exports. Maintaining the hard-won macroeconomic stability, a definite and durable solution to the banking sector issues, realization of the expected growth and fiscal dividend from the GST are other key components of attaining a growth rate of 8 percent or higher. As pointed out by the World Bank’s Systematic Country Diagnostic for India, a reform focus on moving to a more resource efficient growth path, making growth more inclusive, and enhancing the effectiveness of the Indian public sector can assure that these rates can be sustained in the decades to come, moving more and more Indians into a status comparable to the global middle class.

This paper proceeds as follows. Section 2 focuses on India’s long-run growth dynamics. Section 3 summarizes three phases of growth experienced by India since the early 1990s, including the recent rate of growth at high frequency. Section 4 discusses ongoing slowdown in parts of the economy and the policy challenges in reversing the slowdown. Section 5 concludes.

# **2. India’s Long-Term Growth Dynamics**

# **2.1 Accelerating and stabilizing growth rates**

Below we look at the trends in the pace of economic growth in India starting in 1971.<sup>8</sup> The long-term average growth rate has accelerated slowly in India, and despite significant variation around the long-term average, the growth rate has never reversed for a prolonged period (Figure 1). We ask whether the growth acceleration is unique to India or if it has also been the experience of other emerging markets. For this we compare the linear trend in India with the trend in seven large emerging economies, Brazil, the Russian Federation, South Africa, Malaysia, Mexico, Turkey and Indonesia, which we refer to as EM7.<sup>9</sup> We estimate regressions of the following form: GDP Growth�� �β� �β�Trend� �β�India� x Trend� �ε�� �equation 1�

> 7 Arvind Panagariya has highlighted the importance of reviving bank credit to reach growth rates exceeding 8 percent: <u>https://blogs.timesofindia.indiatimes.com/toi-edit-page/how-to-revive-bank-credit-government-should-to-begin-withoffer-psbs-bonds-in-return-for-equivalent-equity/ . In a recent interview, Arvind Subramanian (Chief Economic</u> Advisor) indicated that reaching growth rates around 8.5 percent is conditional on a reform agenda that addresses banking sector and other issues: http://www.livemint.com/Politics/OUuLehx0uBAO32P1xhSYAN/India-can-return- <u>to-85-growth-rate-Arvind-Subramanian.html.</u>

> 8 The source of data is the Central Statistics Office. See Appendix 1 for details on the data used and on how we spliced the GDP series for different base years.

> 9 According to the World Development Indicators, these countries accounted for 12 percent of the world population (30 percent when India is included), 13 percent of world GDP (20 percent when India is included), and an average per capita income of $16,678 (in 2011 PPP $) in 2016.

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