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  September 22nd, 2016 | Written by

Is India the World’s Fastest Growing Economy?

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  • IMF stats show that India used to surpass China about once every ten years.
  • India's trade surplus with the U.S. of $16.6 billion could shrink to $2 billion with corrective steps.
  • 60 percent of American exporters have reduced shipments to India.

Several global economic reports recently heralded India as the fastest growing world economy. That drops China to the second place position.

Those who dissent believe India’s 7.5-percent growth can be attributed to changes in the GDP calculation process made by the Indian government in 2015.

A review of International Monetary Fund stats reveals that India used to surpass China about once every ten years, even without accusations of cooking the books; it happened in 1981, 1989, 1990 and 1999. However, this is the first time India has pulled ahead since the millennium.

Why now? Oil prices have dropped, allowing India to reduce food price inflation. That, along with the 2014 election of a pro-market government led by Prime Minister Narendra Modi, has Indians bullish on their financial future.

Modi has issued an invitation to foreign companies to set up shop in India. But the country is not as eager to expand imports, leaving U.S. exporters frustrated at the legal restrictions that limit their access to this expanding market.

A U.S. International Trade Commission (USITC) report states that India’s imports from the United States have remained well below potential, as a result of various policy barriers. India runs a trade surplus of around $16.6 billion with the United States, but this could shrink to a mere $2 billion if India were to take some corrective steps. Thus says the USITC in its report “Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy.”

The main policy barriers, according to USITC, are tariffs and customs procedures, foreign direct investment (FDI) restrictions, local-content restrictions, treatment of intellectual property (IP), taxes and financial regulations, regulatory uncertainty, and other nontariff measures, such as unclear legal liability, price controls, and sanitary and phyto-sanitary standards.

Other intellectual and investment property policies have impacted such significant sectors as ICT, ecommerce, pharmaceuticals, media, and alcohol. India also imposes several barriers to imports of automobile, solar, and agricultural products from the U.S. While tariff rates on U.S. good dropped from 20 percent in 2000 to 2004 to less than 10 percent since 2005, an expansion of trade has resulted in many more U.S. companies being affected by these policies. As a result, as many as 60 percent of American exporters have reduced shipments to India.

“If tariff and investment restrictions were fully eliminated and standards of IP protection were made comparable to U.S. and Western European levels, Commission model results indicate that U.S. exports to India would rise by two-thirds, and U.S. investment in India would roughly double,” says USITC.