Dear Readers, There were two salutary bits of news for India’s overall economic growth. One, India registered a 14% growth in GDP (gross domestic product) in the first quarter (Q1 or the quarter of April, May and June) of the current financial year. Two, in terms of overall GDP, India overtook the UK and became the fifth-largest economy behind the US, China, Japan and Germany. However, creditable as they are, neither achievement should be conflated with the widespread prosperity of the common Indian citizen. But first, here's how India overtook the UK. How India overtook the UK The first thing to understand is that this is a massive achievement, but it has not come about overnight; it has taken India several decades to accomplish. Even though India is a much larger country than the UK — both in size (UK land area is just 8% of India’s) and population (UK’s population is less than 5% of India’s) — India started out in 1947 enfeebled by two centuries of British colonial rule, which, in turn, boosted the UK’s wealth.
Chart A shows how India bridged the gap with the UK on overall GDP. 
The point to note is that up until the Global Financial Crisis of 2008, the UK kept extending the gap between India and itself on the overall GDP. In 2007, for instance, the difference between the GDPs of the two countries was at its peak. The UK’s GDP was $3.1 trillion while that of India’s was just $1.2 trillion. But the Global Financial Crisis made the UK lose its way. As the chart shows, its total GDP has fluctuated since then — growing one year, contracting the next — and it was still around $3.2 trillion at the start of 2021. In other words, 14 years went by and the UK’s overall GDP barely grew. India, on the other hand, did not allow the global disorder to derail its growth trajectory. Of course, India did lose a step or two, but broadly speaking, it continued to post relatively fast growth rates and kept adding to its overall GDP. Chart B maps the annual growth rates of India (orange bars) and the UK (blue bars) since 1960. It gives a good sense of how India overhauled the UK by growing faster than the UK every passing year. 
For instance, between 1960 and 1991, there were 8 years when India’s growth rate was inferior to the UK’s. By itself, that is not a mean achievement. But since 1991, India’s record is even better. There has been just one year — 1997 — when India’s annual GDP was inferior to the UK’s. This track record also explains why India overtaking the UK was an outcome that many have expected for a while now. Why is it not enough? The simple fact is that in per capita terms, India is far behind the UK. CHART C shows how far behind India is. The GDP per capita is over $47,000 for the UK and just $2,200 for India. Between 2007 and 2009, UK’s GDP per capita fell by $12,000 — that is 6 times India’s present-day GDP per capita — and still the UK’s was at the $39,000 level. This is just one way to show the stark difference between the two countries despite them being on the same levels of overall GDP. 
The Indian Express carried a story that provides more perspective on this issue. It looks at other variables such as Human Development Index, poverty levels, and universal health coverage etc. In short, India overtaking the UK is a creditable achievement and underscores the high growth path India has charted over the past three decades since economic liberalisation in the early 1990s. However, one should not conflate overall GDP and widespread prosperity. Why a 14% GDP growth in Q1 is not enough Table 1 tries to put in perspective the 14% (year on year) GDP growth in Q1. It lists the GDP and GVA (gross value added) in the first quarters of all the years since 2013-14 and then calculates the growth rate of GDP and GVA over the three-year periods. 
So while it is understandable to some extent that India grew at just 4% over the pre-Covid period, what this table brings out is that India’s GDP has been losing its momentum even before Covid. Another way to understand how headlines fail to capture the stress in the system is to look at the sectoral growth story. For this, one has to look at the GVA numbers. In Table 2, first look at the column for Trade, Hotels, Transports etc. services. This lot of services is one of the biggest contributors to the overall GVA — behind just the financial services and the manufacturing verticals. On the face of it, this sector has grown by almost 26% in Q1 of FY23 but notice that it is still 16% below the pre-Covid level. The growth rates between FY17 and FY20 as well as between FY14 and FY17 further underscore the extent to which this sector’s fortunes have reversed. 
Another key sector is Manufacturing. It registered a growth of just 7% in the past three years. Even if one discounts this phase due to Covid disruption, its performance was not too different in the three years preceding Covid (blue row). The growth rate between FY14 and FY17 (green row) shows a glimpse of what this sector is capable of. Manufacturing’s performance explains why manufacturing jobs in the country have halved between 2016 (when the Make in India policy was implemented) and 2020. Or why there is such widespread unemployment in India. It also explains why Indians are going back to agriculture — a regressive trend from the point of view of India wanting to become a more prosperous economy. Not surprisingly then, the news of a 14% GDP growth in Q1 led to several observers marking down India’s GDP estimates for the current year. That’s because everyone, including the RBI, expected India to grow by over 16% in Q1. The RBI, for instance, had expected India to grow faster in the first quarter before moderating to just about 4% in the last two quarters of the financial year. Now that India’s GDP rate has underwhelmed, many expect the overall GDP growth in the current financial year could slip below the 7% mark. For instance, the State Bank of India now expects India’s GDP to grow by just 6.8% in 2022-23 — as against the estimate of 7.5% earlier. Similarly, Citibank has revised down growth from 8% to 6.7%. For a more detailed take on the GDP numbers, watch this week’s Express Economist. And if you want to know more about how to make sense of the unemployment trends in India then don’t miss this episode of the Express Economist featuring Radhicka Kapoor, Senior Visiting Fellow at ICRIER and one of the foremost authorities on this topic in the country. Please share your views and queries at udit.misra@expressindia.com. Stay safe, Udit If you received this newsletter as a forward, you can subscribe to it, here. Do read our other Explained articles, here | To subscribe to our other newsletters, click here | 
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