What Happened to India?

Major emerging-market economies around the world are slowing, for reasons both shared and unique. Hardest to understand, though, is why India, where annual GDP growth has fallen by five percentage points since 2010, is underperforming so much relative to its potential.

CHICAGO – Emerging markets around the world – Brazil, China, India, and Russia, to name the largest – are slowing. One reason is that they continue to be dependent, directly or indirectly, on exports to advanced industrial countries. Slow growth there, especially in Europe, is economically depressing.

But a second reason is that they each have important weaknesses, which they have not overcome in good times. For China, it is excessive reliance on fixed-asset investment for growth. In Brazil, low savings and various institutional impediments keep interest rates high and investment low, while the educational system does not serve significant parts of the population well. And Russia, despite a very well educated population, continues to be reliant on commodity industries for economic growth.

Hardest to understand, though, is why India is underperforming so much relative to its potential. Indeed, annual GDP growth has fallen by five percentage points since 2010.

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