Economy Better Poised but Still Needs Deft Steering
STORIES, ANALYSES, EXPERT VIEWS
Most reports and assessments talk of India poised to be one of the leading emerging economies.
GDP touched the $3.75 trillion-mark
The Finance Ministry confirmed India's gross domestic product (GDP) has touched the $3.75 trillion-mark in 2023, up from around $2 trillion in 2014.
The Ministry further stated that India is the fifth largest economy in the world. India's GDP stood at $3,737 billion in current price terms, lower than the USA ($26,854), China ($19,374 billion), and Germany ($4,309 billion).
India's GDP at current prices ranks above the UK ($3,159 billion), France ($2,924 billion), Canada ($2,089 billion), Russia ($1,840 billion), and Australia ($1,550 billion) at current prices.
Moody’s positive on growth
Meanwhile, ratings agency Moody’s on 11 June forecasted Indian economy to grow at 6 per cent to 6.3 per cent in the June quarter. Moody’s prediction is much lower than the 8 per cent growth predicted by the Reserve Bank of India (RBI) last week. Moody’s Investors Service Associate Managing Director Gene Fang said: ''We expect India's growth to come in around 6-6.3 per cent in the first quarter of the current fiscal year, which remains relatively flat from the 6.1 per cent recorded in the final quarter of fiscal 2022-23”.
In its monetary policy committee (MPC) meeting outcome announced last week, the RBI projected India's GDP growth at 6.5 per cent in the current fiscal. The central bank projected June quarter (Q1) growth at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent.
Logic of CEA’s optimism
Separately, according to Chief Economic Adviser (CEA) V. Anantha Nageswaran’s prognosis of the state of the economy, India’s economy is firmly out of the throes of the pandemic blues, the higher-than-expected 7.2% GDP growth last year could actually be an ‘underestimate’, and the country is now poised for a decade, if not more, of uninterrupted 6.5%-7% growth, even if no further reforms are undertaken. India, he asserted, could now grow for a longer period of seven to 15 years as China did between 1979 and 2008 without ‘running into overheating problems’ as it did after three-four years of strong growth in recent decades.
Among the reasons for his optimism — strong momentum, better macro fundamentals with inflation and trade deficits easing in recent months, and cleaner bank and corporate balance sheets, bolstered by reforms such as Goods and Services Tax (GST) and digitisation that are spurring formalisation.
Some more distant to go, however
The CEA’s elaborate elucidation on the economy’s bright prospects, in the view of The Hindu “can well be seen as a fresh official nudge to the private sector to stop worrying and restart investing. At the same time, his comment that the economy could be on ‘auto-pilot’ mode, may be a hint that the appetite for important pending reforms such as rationalising the GST structure or fixing archaic factor market laws is low, at least till the 2024 Lok Sabha election.”
With sectors such as steel and cement seeing higher capacities in action, “sections of industry may well start loosening the purse strings soon but a broad-based revival may take longer and needs more actions to buttress the confidence-building. That India has now recovered from the COVID-19 hit on the economy…..is good. But returning to the pre-pandemic trajectory is not enough…The economy grew just 3.9% in 2019-20 from 6.5% in the year before, and the quality of the recovery thus far remains uneven. Unless private investment recovers firmly and revs up job creation for millions of youth, demand growth shall not sustain enough to create the virtuous cycle the government is betting on. If India wants to encash the world’s China-plus-one supply chain quest, that intent is not often matched by actions….”
GDP not a flash in the pan
However, in the view of Sanjay Nayar (founder-chairman of Sorin Investments, an early stage technology fund) “the 7.2% growth was no flash in the pan and reasons need to be understood by looking at all that has been done in the last nine years, and how India is positioned to be the largest growth contributor to the global economy. Getting there will be one part of the journey. The second will be to sustain it in the wake of global headwinds, oil prices, geopolitical uncertainties and vagaries of monsoon.”
Positive reforms: In the past decade, Nayar writes “the state has boosted spending on infrastructure, ramped up on supply-side policy reforms, and further formalised the economy along with never before seen digital off-takes for transactions. All that has come together at a critical junction that makes India readier today than ever before for further growth.”
Sentiment by international corporations higher today: For India than other Asian sentiment by international corporations is higher: economic markets and foreign direct investment is seen as an important propeller in conjunction with state and private local capital.
Rise of manufacturing and capex: Research reports point to the steady rise of manufacturing and capex as a percentage of GDP. Already there have been announcements by large corporations such as Apple and the Tata Group to partner on manufacturing facilities which will make phones.
Demographic dividend: As India and its youth population, which is the largest in the world, mature, Nayar states “discretionary consumption will also evolve. The consumption acceleration is expected to see Indian per capita income more than double from $2,200 currently to about $5,200 by 2032.”
‘Gati Shakti’: Long-term projects like ‘Gati Shakti’ which is a digital platform to bring together 16 ministries including railways and roadways for integrated planning and coordinated implementation of infrastructure connectivity projects “will provide seamless connectivity for the movement of people, goods and services from one mode of transport to another. That means facilitating last-mile connectivity and slashing travel time and logistics costs."
Morgan Stanley report: According to an economic report by Morgan Stanley, at a systemic level, the financial ecosystem is pegged to see stable inflation and shallower interest rate cycles. All of that, writes Nayar “is geared to feed into the saving-investment dynamics, driving gains for India's external balance sheet, with a progressively narrower trend in the current account deficit (CAD). Triggered by supply-side reforms by the government, analysts and research houses point to a major rise in investments, a moderation in the CAD and an increase in credit-to-GDP to support growth for coming profit, the report says."
Merchandise and services exports: The commerce and industry ministry said that India's merchandise and services exports will cross $2 trillion by 2030 from the current level of $765 billion (which in itself was significant given global circumstances), on the back of a more dynamic foreign policy.
Nayar concludes, “this government's focused execution across long-term projects, the robustness of the financial system and tax collection plans like GST have made the country the largest GDP contributor in Asia. Sustaining it and working across progressive reforms will ensure India becomes one of the largest contributors across the world as well….”
