High optimism on growth of India’s economy

After financial bodies and agencies repeatedly readjusted their forecasts about India’s economic growth during 2022, there was a note of high optimism as the year drew to a close. In the opening week of December, the World Bank said India was better placed  to navigate global headwinds than the other major emerging economies. Despite a challenging external environment, the country’s economy had demonstrated resilience, it added in its India Development Update.

It observed that tightening the global monetary policy cycle, slowing global growth and high commodity prices would lower growth in the current financial year (which runs till March 31, 2023), compared to the previous year. Yet it expected India to register a strong GDP growth and remain one of the fastest growing major economies because of robust domestic demand.

Considering the strong outturn in the second quarter (July to September), the World  Bank revised its forecast of GDP growth in India in 2022-23 to 6.9 per cent from the October estimate of 6.5 per cent. In 2023-24 it expected the GDP to grow at a slightly lower rate of 6.6 per cent.

India’s economy, it  pointed out, was relatively insulated from global spillovers because it had a large domestic market and was, therefore, less exposed to international trade flows. The report noted that India’s external position had improved considerably over the past decade. It had one of the largest holdings of international reserves in the world.

 Dhruv Shara, a senior World Bank economist and one of the authors of the report, said the government’s prudent policy response to global spillovers had helped India to navigate global and domestic challenges.

The report gave credit to the Reserve Bank of India for withdrawing accommodative monetary policy settings in a measured approach to balance the need to rein in inflation and continued support to economic growth. The RBI pitched the GDP growth forecast for 2022-23 at about seven per cent. Taking a longer-term view of economic trends worldwide, Morgan Stanley, a leading global financial services agency, said India was on track to become the world’s third largest economy by 2027, overtaking Japan and Germany. By 2030 it would have the third largest stock market. One factor making all this possible was the key investments the country had made in technology and energy, it added.

India was the world’s fastest growing economy when the pandemic struck and lockdown to check its spread hit economic activity. Although India was yet to regain the pre-Covid growth rate, the Morgan Stanley report said it was still the fastest growing economy, clocking an average GDP growth of 5.5 per cent over the past decade.

It added that three megatrends — global offshoring, digitalisation and energy transition — were setting the scene for unprecedented economic growth in this country of more than one billion people. Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India, remarked that the country was gaining power in the world order, and “in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”

Before Covid flattened the economic curve, Prime Minister Narendra Modi was talking of creating a $5 trillion economy. Morgan Stanley experts, in their report, went farther than that. They said India’s GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over that period.

They also envisaged the possibility of stock market capitalisation reaching $10 trillion in the coming decade. In a Research Bluepaper, they said India was entering a new era of economic development. It could bring about staggering changes: boosting India’s share of global manufacturing, expanding credit availability, creating new businesses, improving quality of life and spurring a boom in consumer spending.

In a world starved of growth, the opportunity set in India must be on global investors’ radar, Chetan Ahya, Morgan Stanley’s Chief Asia Economist wrote. “India will be one of only three economies in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028,” he added.

The government is entitled to rejoice over the turn of events. But new opportunities bring with them new responsibilities also. The Modi regime had drawn flak from critics at home and abroad for not being sensitive to the hardships of the poor during the lockdown which deprived them of their means of livelihood.

The Prime Minister has stated that his government’s policy is one of all-inclusive development. But it largely remains a slogan. At a time of speedy development, the government needs to keep extra vigil to ensure that inequality does not grow to dangerous levels.