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India to emerge as an economic superpower amid looming global economic landscape

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While the risk of global recession has receded, concerns of inflation are still there which re-ignites the risks of global financial stability. International organisations and rating agencies have predicted further slow-down in global growth this year. Downside risks include an escalation of the recent conflict in the Middle East, financial stress, persistent inflation and slowdown in international trade.

A potential debt crisis is looming over the global economic landscape. The International Monetary Fund’s (IMF’s) Global Debt Monitor reported total global debt, private plus public, to have risen to USD 235 trillion, equivalent to 238 per cent of the global GDP. There is grave concern that fiscal prudence may take a back seat in 2024 as more than half of the world’s population goes to elections.

Amid all the pessimism, India is seen as an emerging economic superpower of the world. India’s central bank in its monthly economic review says “there is a growing optimism that India is on the cusp of a long awaited economic take-off.” India is positioned to remain the fastest-growing major economy, demonstrating resilience amid geopolitical challenges and supply chain pressures.

In its Economic Outlook of May 2024, Organisation for economic cooperation and development (OECD) has projected global growth at 3.1 per cent in 2024, and 3.2 per cent in 2025. But amid emerging markets India is projected to remain the fastest growing major economy of the world. India’s growth in 2025 is projected at 6.6 per cent, China at 4.9 per cent and Brazil at 1.9 per cent. In advanced economies, US, UK and Euro, area growth is projected at mere 2.6, 0.4 and 0.7 per cent respectively.

Recently, the IMF too has revised India’s GDP growth forecast upwards by nearly 2 percentage points for the fiscal year 2023-24. IMF’s April 2024 World Economic Outlook highlights the expected robustness of the Indian economy in 2024 and 2025, attributing this to strong domestic demand and a growing working-age population.

RBI’s monthly economic report highlights the attention of global observers is the dramatic reduction of poverty in India. Prime Minister Narendra Modi has said in his election rallies that in last 10 years, over 23 crore people have come out of poverty. World Bank too has said that at the height of the COVID-19 pandemic in 2021, only 12.9 per cent of India’s population lived on USD 2.15 a day, the benchmark for extreme poverty. Recent estimates suggest that extreme poverty in India is nearing extinction, a remarkable transformation for a country once synonymous with deprivation.

On the infrastructure development, India’s power sector has achieved 100 per cent electrification over the last ten years. Rural areas now enjoy 20 hours of daily power availability, while urban areas have 23.5 hours. Additionally, India has become the world’s third-largest producer of renewable energy. India is aggressively pushing research and innovations in hydrogen energy sector through various incentive schemes. According to the World Economic Forum (WEF) projections 50 million net jobs will be created in India from the green energy and 1 trillion economic impact by the year 2030.

Over the last ten years, India’s road and highways sector have grown with a rapid pace. By end December 2023, India has about 66.71 lakh km of road network, which is the second largest in the world.

The digital revolution in India is another sector where the country has taken a lead, many countries have adopted India’s UPI for financial transactions. With the highest number of digital transactions globally and broadband connectivity reaching over 93 per cent of villages, India is rapidly becoming a digital powerhouse of the world.

E-commerce platforms like the Open Network for Digital Commerce (ONDC) are expanding online market access for small businesses. Government thrust on digital public infrastructure is not only enhancing productivity, efficiency, and employment but also improving the revenue of the government.

On the trade front, despite a slowdown in international trade, India’s exports marked an all-time high exports of USD 778 billion in FY24. India has become the seventh-largest exporter of services globally and the second-largest among the developing countries. According to UNCTAD, India beat the world average in services exports in 2023. Business services are expanding, supported by global capability centres. The outlook for software services remains strong, with global IT spending set to increase significantly with emergence of AI and innovations.

According to fDi intelligence, India is anticipated to be among the top 10 economies for foreign direct investment (FDI) momentum in the year 2024. Despite a net outflow of USD 1.1 billion from Indian equities in April, the country’s foreign exchange reserves have increased by USD 21.7 billion in 2024, the highest among major reserve-holding nations. Forex reserves now stand at USD 644.2 billion, covering more than 10 months of projected imports for 2024-25 and nearly all external debt as of end-December 2023.

Gross inward foreign direct investment (FDI) almost remained stable at USD 71.0 billion during 2023-24, it was USD 71.4 billion a year ago. RBI data shows that more than 60 per cent of the FDI equity flows were directed towards manufacturing, electricity and other energy, computer services, financial services and, retail and wholesale trade. Singapore, Mauritius, the US, the Netherlands, Japan and the UAE contributed to more than 80 per cent of the flows. However, net FDI declined to US$ 10.6 billion during 2023-24 from US$ 28.0 billion a year ago, mainly reflecting higher repatriation.

Speaking at the annual Summit of industry body CII last week, Finance Minister Nirmala Sitharaman asked the Industry not to ignore manufacturing as some economists suggest.

“India must also increase manufacturing with the help of policies, its share in manufacturing in global value chains. So we need to have greater sophistication in our product manufacturing and we also need to see how this can be given the best policy support, … IMF estimated that India’s contribution to the global growth for five years beginning 2023, will be 18 per cent, So, between 2023 and 2028 we are looking at an India which will be dynamic contributing to 18 per cent to the global growth,” Sitharaman said.

Reacting to the FM’s push on manufacturing, esteemed banker K V Kamath, told ANI “If India grows at 7-7.5 per cent, manufacturing will happen on its own. It will happen on its own. I look at all that has been done, the clean balance sheets, (of banks) the opportunities before them, the growth that we see, the Indian economy should do extremely well.”

On India’s growth story Ajay Piramal, Chairman Piramal Group told ANI that “We’ll be the third-largest economy, maybe a USD 40 billion economy. Even now, in the next – I think by 2029, we’ll be the third-largest economy. So only the U.S. and China will be ahead of us. So that’s a big progress the country is making. ”

Government policies are pushing up new and innovative sectors in the manufacturing space. The Production Linked Incentive (PLI) schemes for 14 identifies sectors, with a total outlay of about Rs 1.97 lakh crore are under various stages of implementation. Some of the beneficiary sectors include EV, EV Batteries, Hydrogen electrolysers, pharma, food processing and electronics among others.

In the manufacturing space, electric vehicle (EV) segment is a major disruptor. In March government has come up with a new EV policy to attract investment in the sector. The new EV policy allows import of completely build units (CBUs) at a concessional 15 per cent duty for a period of five years, if a company invest USD 500 million in setting up a manufacturing unit in India. The government is looking at operationalising the new EV policy by the end of July. Companies will be given 120 days, window to apply under the scheme. This will open a window of opportunities for international EV manufacturers including Tesla to enter India.

The S&P global outlook report has said that, the Indian consumer market is likely to double by 2031. Consumer spending on food is estimated to rise 1.4 trillion US dollars in India, spends on financial services will climb to 670 billion USD. Government is seeing these as untapped opportunities that are unexplored till now.

The recent CPI data of India indicates higher growth in consumer demand from the rural market than urban India indicates a big growth potential for India in years to come. Goods and services tax (GST) collections in April 2024 recorded a y-o-y growth of 12.4 per cent, surpassing the Rs 2 lakh crore mark for the first time.

All this indicates that over the last one decade, India has become a prominent player in the global landscape, attracting the interest of investors, policymakers and businesses worldwide. With a growth rate of over twice of the most emerging market economies, lower tariffs, lower labour cost, special incentives by the government of India will continue to be a major attraction for investors.