India likely to continue as the fastest growing economy in 2023-24

Question: What are the prospects for the Indian economy in the fiscal year 2023-24? The prognosis for other developed and developing nations is quite gloomy due to the rise in commodity prices and geopolitical uncertainties.

ANSWER: Most financial analysts and business leaders in India are of the view that India is well positioned to continue as the fastest growing economy in 2023-24 despite several risk factors which will impact the global environment. The positive factors in India relate to increase in consumption patterns, higher consumer confidence and more investments in capital assets. At present, the country is experiencing a rise in the share of global manufacturing. Further, tremendous business opportunities arise in supply chain management as well as in artificial intelligence and machine learning. This is reflected in substantial rise in sales of electric vehicles all over India. During April to November 2022, 430,000 units of electric two-wheelers have been sold and the sale of luxury cars is increasing month by month. More than 40 per cent of the cars sold during the current fiscal year are in the range of Rs1-4 million. The country’s auto component industry has registered a turnover of around $34 billion during the first half of the current fiscal year. Further, the travel and hospitality sectors in India are showing an unprecedented growth and the number of passengers travelling from Indian airports has exceeded the pre-Covid 2019 levels. India is also on the higher trajectory of growth as it has started new initiatives by going into manufacture of semi-conductors, precision electronics and green energy components.

Question: With Covid cases rising in China and elsewhere, what steps are being taken to meet this challenge apart from screening passengers who arrive from some of the East Asian countries?

ANSWER: The government is gearing up for meeting the challenge by activating various protocols and having emergency services set up in all parts of the country. The insurance regulator, IRDAI, has asked insurance companies to give discount on premium paid for renewal of general and health policies to those who have taken the precautionary shot of the Covid vaccine. In other words, all efforts are being made to ensure that maximum number of citizens have taken three doses of the Covid vaccine. The regulator has also urged insurance companies to ensure that empanelled hospitals are prohibited from taking deposits for Covid hospitalisation as some of the hospitals were demanding advance payments before treatment was given. Life and non-life insurance companies have been directed to settle Covid-related claims at the earliest by reducing paperwork.

Question: I am planning to return to India and set up IT-enabled services business. As the costs in metro cities like Mumbai, Delhi, Bengaluru have skyrocketed, I am considering setting up my business in some of the Tier-2/3 cities in India. Would it be the right decision?

ANSWER: According to the report of an American IT research advisory company, out of $180 billion exports from India, about $36 billion export revenue is supported by Tier-2/3 cities. This trend is growing and is being driven by the need for risk diversification, cost savings, access to untapped talent pool and reduced market congestion. The Tier-2/3 cities are being leveraged as a spoke or satellite and business continuity planning locations to support Tier-1 cities. Further, most of the domestic operations of providing IT-related services are undertaken from Tier-3 cities. Tier-2 cities like Ahmedabad, Kochi, Coimbatore, Indore, etc. are used to support application development and other related services. Many foreign and Indian companies are setting up centres of excellence and innovation hubs focusing on next generation services, such as cyber security and artificial intelligence. Tier-2 cities are preferred as the operation costs are atleast 15 per cent lower than in Tier-1 cities. Another factor is that there is a much lower attrition rate in Tier-2/3 cities as compared to Tier-1 cities which translates into lower hiring and training costs.

H. P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.

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