Is India different? Last month, India's finance minister confidently declared that nothing could stop his country from becoming the world's third-biggest economy. He may well be right, but size alone does not make India a special case. Its growth has been fast, but it is no trailblazer.
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Here are eight popular myths about India's growth, all of which are easily debunked:
India has outperformed other emerging economies in the recent past. In the two decades from 1992 to 2012, average living standards in India did rise faster than those in most countries that started from a similar level. In fact, only nine other countries in the world saw living standards, measured by purchasing power, climb more quickly: Albania, Armenia, Bhutan, China, Equatorial Guinea, the Maldives, Mozambique, Sudan, and Vietnam. Faster growth was to be expected in countries that started out with lower living standards than India's, but several of these -- Albania, Armenia, Bhutan, China, and the Maldives -- actually started out with higher purchasing power. Relative to them, India underperformed.
India will grow faster than other emerging economies in the future. For the next five years, the International Monetary Fund projects that living standards in several countries will grow faster than India's. Among them, again, are countries with a higher starting position: Bhutan, China, the Republic of Congo, and Georgia. India will likely outperform many other economies that have similar living standards today, but it hasn't unlocked every secret of economic growth just yet.
When India finally opens its markets to trade, exports will supercharge its growth. India is not the easiest place to be an exporter, but it's hardly the most difficult, either. In terms of both time and money needed to ship a container of goods, India ranks in the middle of the pack, according to the World Bank. If anything, exports could become more expensive for Indian companies if the United States and others forced India to drop some of its remaining export subsidies. In 2011, India's exports and imports represented 54 percent of GDP, about the same share as in China. It's unlikely that exports will change the growth story anytime soon.
The urbanization of India's huge rural population will lead to unprecedented increases in living standards. Urbanization has been a critical ingredient to economic growth for many countries. Simply putting labor next to capital by attracting people into cities tends to raise workers' productivity and, eventually, their incomes. More than two thirds of India's population still lives in rural areas, compared with less than half in China. But India is not under-urbanized compared to other poor countries; if you look at how living standards compare to urbanization among all the world's countries, India sits right on the best-fit line. There's no reason to believe that urbanization will help India's growth more than it has for any other country.
India's service industry will provide a huge boost to employment. India's legions of call-center staffers, software developers, and information-technology experts have led some analysts to proclaim a "service revolution" that will provide an alternative to manufacturing as a path to prosperity. Yet economists suggest that India's service sector has merely caught up to international norms, and there is no particular reason to believe that it will take over a much bigger share of the economy as the country grows. The literacy rate in China is much higher, and it's not clear that India even has more English speakers. Moreover, as wages rise in China, the opportunity for India to raise living standards through manufacturing -- not services -- will expand enormously.
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