Is India Inc. the 'Bright Spot' in the Global Economic Slowdown?
The original version of the article was published on 14th June 2023 in “The Daily Guardian” The Reserve Bank of India predicts that India will continue to maintain its position as the fifth-largest economy in the world in 2023. The report further said India is likely to become a USD 3.7 trillion economy in 2023 and will continue its lead, despite the slowdown in the global economy.
India's real GDP contracted in the 2020-21 financial year due to the COVID-19 pandemic, however, it saw a strong bounce back in 2021-22 due to a combination of accommodating monetary and fiscal policies and wide-scale vaccine coverage.
In 2022, India emerged as one of the fastest-growing economies worldwide, despite major challenges in the global economy such as disruption of global supply chains due to geopolitical tensions, overall tightening of monetary policies and increased inflationary pressures. India's gross domestic product (GDP) touched the $3.75 trillion -mark in June 2023, with Finance Minister Nirmala Sitharaman calling India a “bright spot” in the world economy.
At current prices, India's GDP ranks above the United Kingdom (USD 3,159 billion), France ( USD 2,924 billion), Canada (USD 2,089 billion), Russia (USD 1,840 billion), and Australia (USD 1,550 billion). While India Inc's performance in the 2022-23 financial year was stellar, global uncertainties and slowdown put a huge question mark on the country's performance for the 2023-24 financial year. However, recent data revisions suggest the economy has fared better than previously believed despite continuing global uncertainties. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023-24 and at an average rate of 6.1% over the next five years.
India overtook the UK to become the fifth largest economy in 2022 and continues to be at the fifth position with a GDP of USD 3.75 Trillion. India overtook France in 2019, with a gap of around USD 100 billion and successfully widened this gap to USD 210 billion in 2021. In 2018, both the economies were tied with an annual GDP of around USD 2.7 trillion. In addition to this, overall India has increased its share in the global GDP by nearly one percentage point since 2014 when it was at the tenth position in the global economy. Projections also indicate this percentage is likely to rise to around 4 per cent from the current 3.5 percent by 2027, helping India overtake Germany's position in the global economy.
Despite the ongoing global economic slowdown, India is likely to be the fastest growing economy in this fiscal year. The country's GDP growth rate for the first quarter of the 2022-23 financial year has been at an impressive 13.5 per cent. A State Bank of India report also predicts that the overall growth rate of the Indian economy for the current financial year is likely to stand between 6.7-7.7 per cent. The report also estimated that India will be the third-largest economy by 2029. In terms of purchasing power parity (PPP), India has continued to be the third-largest economy in the world in 2023. India stands at USD 10.22 trillion, which was twice the size of Japan. Japan was the fourth largest economy in the world in PPP terms, with a USD 5.4 trillion economy. Despite the global slowdown, exports from India have performed well, with India's services exports skyrocketing by 30% between April and February.
The country's performance in other economic indicators has also been very positive in the past few months. India's private equity-venture capital (PE-VC) sector investments stood at USD 2 billion in September 2022. The country recorded a cumulative foreign direct investment (FDI) equity inflow of USD 604,966 million from April 2000-June 2022. In September 2022, the merchandise exports of the country stood at USD 32.62 billion, while the gross Goods and Services Tax (GST) revenue collection stood at USD 17.92 billion.
In August 2022, the overall IIP (Index of Industrial Production) stood at 131.3. The Indices of Industrial Production for the mining, manufacturing and electricity sectors stood at 99.6, 131.0 and 191.3, respectively, in August 2022. In addition to this, the country's Purchasing Managers Index remained comfortably in the expansionary zone at 56.7 from April-September 2022. According to a report by management consulting firm Kearney and the World Economic Forum, by 2030, India is projected to have the world's largest labour force and could contribute more than USD 500 billion annually to the global economy.
What are the main factors contributing to India's growth?
Two of the most important factors contributing to India's growth are its technological and digital progress and skill bank. India has a very strong digital advantage when compared to the rest of the world with around 900 million of those in the working-age population having affordable internet access at $2.5/month and 650 million smartphones. This has led to a new surgence in demand for financial services, consumer goods, healthcare and education. Additionally, the unbanked population in the country has also reduced to under 20 per cent and per capita data consumption is also amongst the highest in the world. The Indian economy is also a powerhouse of technology skills with technological service exports crossing $150 billion in the last financial year. The country also continues to rise in the Global Innovation Index, primarily due to its demographic and digital dividend.
Other major factors which also continue to contribute to India's economic growth despite an ongoing global slowdown include the country's infrastructure, stable political climate and its banking system. In the past few years, the country has seen massive investments in ports, airports, railways and highways, which has created a world-class transportation network and enabled the ease of doing business by creating an integrated ecosystem for manufacturing, logistics and exports. Indian economic policy in the past few years has focused on promoting the ease of doing business. With inititatives such as the digitization of the Goods & Services Tax (GST) and the Jan Dhan Yojana, the government has made compliance work easier, promoting new business opportunities. India also continues to be a dominant player in the world's food basket as it is the largest producer of milk, pulses, and spices, and second largest in fruits, vegetables, tea, farmed fish, cotton, sugarcane, wheat, and rice which supports 17.8 per cent of the world's population. These factors have a cumulative impact, making the Indian economy resilient to sudden shocks and stablizing its economic growth in the global economy.
Overall, the Indian economy has exhibited robust resilience in the previous fiscal, emerging among the fastest-growing economies among major nations. However, the Reserved Bank of India in its annual report released in June, 2023, said that weakening consumption in the second half of the 2022-23 financial year, compounded by a reduction in rural demand and increasing inflation and cost pressures will continue to slowdown the economy and the rate of economic growth.
Shreya Maskara/New Delhi
Contributing reports by Swati Sinha, Sreetama Neogi and Rounak Tahiliyani, Researchers at Polstrat.
From Polstrat, a non-partisan political consultancy which aims to shift the narrative of political discourse in the country from a problem-centric to a solutions-oriented approach.