India matters now and will matter still more in future. It is a democracy; its economy is fast growing; and it will soon be the most populous country in the world. Westerners should passionately desire India to be a successful model of democratic and market-led development. An important question then is whether the government of Narendra Modi, in office since May 2014, has made a decisive difference to India’s economic trajectory. The evidence is: not yet. But the reforms it has introduced might make a more noticeable difference in the years ahead.

A decisive shift in India’s economic policies and performance occurred after the foreign currency crisis of 1991. India’s version of China’s “reform and opening up” raised average growth of gross domestic product per head to close to 5 per cent a year between 1992 and 2017. The five-year moving average of growth of GDP per head reached 7.2 per cent in the years up to and including 2007, before slowing to 5.8 per cent in the years to 2017. That slowdown is disappointing. Yet, if this rate were maintained, GDP per head would double every 12 years. That would be transformative — and not just for India, since its population is forecast by the United Nations to reach 1.6bn (17 per cent of the world’s total) by 2040. (See charts.)

An important question is whether India’s rate of growth will continue to decline, stabilise or rise yet again. A crucial issue here is the marked fall in the country’s rate of investment, from a peak of 40 per cent of GDP in 2011 to 30 per cent in 2017. If the investment rate were to remain at the latter level, GDP growth is unlikely to rise to over 8 per cent a year, let alone to still higher rates, though it should not fall below today’s rates. In retrospect, the soaring investment rates of the early 2000s were themselves unsustainable. They bequeathed a “twin balance sheet” problem that resulted from the bad debt in banks and many businesses.