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Is India's Long-Term Trend Growth Declining?

Author

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  • Patnaik, Ila

    (National Institute of Public Finance and Policy)

  • Pundit, Madhavi

    (Asian Development Bank)

Abstract

The recent decline in gross domestic product (GDP) growth in India raised a debate about whether it is a trend or a business cycle slowdown. We observe a cyclical downturn post-global financial crisis due to external and domestic conditions. With global recovery strengthening and appropriate demand management policies, the business cycle downturn can be reversed. At the same time, the economy witnessed negative shocks to trend growth caused by policy uncertainty. In this paper, we argue that these shocks are temporary. A stable policy environment can give positive shocks to growth. Policy action eliminating frictions that hamper efficient allocation of resources in factor markets can be seen as a positive shock that will pull up trend growth of output. Given that the supply of factors, namely labor, human capital, infrastructure, and non-infrastructure capital appears robust and productivity growth potentially strong, timely reforms that eliminate structural bottlenecks will enable trend growth to pick up.

Suggested Citation

  • Patnaik, Ila & Pundit, Madhavi, 2014. "Is India's Long-Term Trend Growth Declining?," ADB Economics Working Paper Series 424, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0424
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    References listed on IDEAS

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    Cited by:

    1. Radhika Pandey & Ila Patnaik & Ajay Shah, 2017. "Dating business cycles in India," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 10(1), pages 32-61, April.
    2. Radhika Pandey & Ila Patnaik & Ajay Shah, 2019. "Business Cycle Measurement in India," Societies and Political Orders in Transition, in: Sergey Smirnov & Ataman Ozyildirim & Paulo Picchetti (ed.), Business Cycles in BRICS, pages 121-152, Springer.

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    More about this item

    Keywords

    trend growth; business cycle; factors of production; policy shocks; India;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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