India overtakes China to become the world’s fastest growing economy in Q1 2018

• On Friday, the Central Statistics Office (CSO) in India stated that the Indian economy has grown by 8.2% during Q1 2018.
• While this may make India the fastest growing economy in the world at present, the added benefits of a growing economy are not at par with that pace.
  
• That being said, the growth numbers for India has resulted in a stronger rupee since the markets opened today morning.

While the International Monetary Fund may have revised its estimates for India’s growth this year, the Central Statistics Office (CSO) announced that the Indian economy grew by 8.2% between the months of April to June. This puts India at the helm as the world’s fasting growing economy beating China’s top spot., which witnessed a growth of 6.7%.

The Finance Minister tweeted that the reforms put in place by government as well as the fiscal prudence shown by the regulators that are allowing the economy to grow even in the midst of global turmoil. That being said, overtaking China might have a lot to do with the ongoing trade war between the Asian nation and the United States.



The Economics Affairs Secretary, Subhash Chandra Garg, stated that India seems to be on track in its goal of meeting more than 7.5% growth for FY2018-19.



The driving forces behind this growth are the country’s manufacturing and the consistent increase in the demand of consumption goods. A report published by the Indian Cellular and Electronics Association (ICEA) analysed that the import substitution of cell phone manufacturing results in saving of ₹3 trillion for India.

Growth without the benefits

The main benefits of a growing economy, in theory, are employment generation, higher living standards, stimulating new investments, and a greater fiscal dividend. But the fact of the matter is that despite growth, the positive externalities are yet to present themselves.

It’s not that jobs aren’t being created or that investments aren’t increasing, but their pace is at parity with the growth trajectory. The most recent report by the International Labour Organisation (ILO) highlights how India’s growth hasn’t been inclusive with a gaping rural-urban divide as well as a gender-wage inequality.

And, speaking of foreign direct investment (FDI), while there has been a steady increase, it’s important to remember that it’s largely due to ‘preferential’ tax treaties between India and countries like Mauritius and Singapore. The top three sectors to gain from FDI have been services, telecommunications and computer services.

While long-term benefits are yet to pick their pace, in the short run we can see that the rupee has already strengthened against the dollar since the news of India’s growth broke on Friday. It has increased to trading at ₹70.84 a dollar from ₹71 a dollar at market opening on Monday.