Firing On All Cylinders As A Global Growth Engine

The Government of India has set for itself the goal of becoming a 'developed' economy by 2047

For India, the year 2023 is just as consequential as the year gone by when it marked the 75th independence anniversary.

India became a sovereign, socialist, secular, democratic republic in 1950. Some 73 years on, the fastest-growing major global economy is raring to go, firing on all cylinders to attain all key milestones it has set its eyes on in its journey to its centenary year, having attained the status of the world’s fifth-largest economy and achieved the record of surpassing 2.2 billion Covid-19 vaccines in 2022.

Inflection Point

This year, regardless of a confluence of calamities the world is facing, the nation of 1.4 billion people marks a critical inflection point in its pivot to a transformational era of increased international political and economic clout. And, as the President of the G20 in 2023, the world’s largest democracy hopes to showcase its strategic advantages given its close relations with both the developed and developing countries, and its track record as a non-aligned nation. There is considerable hope that India would be able to bridge the East-West and the North-South divides, and bring the whole world together as per its G20 motto of ‘One Earth, One Family, One Future’.

G20 Priorities

Prime Minister Narendra Modi has stressed that India’s presidency would be inclusive, ambitious, action-oriented, and decisive. India’s G20 priorities include accelerated, inclusive and resilient growth, accelerating progress on sustainable development goals, technological transformation, digital public infrastructure, green development, strengthening multilateral institutions for the 21st century, and women-led development.

Kenneth Juster, a former US Ambassador to India, has said in a multipolar world, India’s embrace of a middle path has bolstered its image as a nation “with which everyone is interested in having a good relationship.”

East-West Bridge

“India is positioning itself, and using its presidency of the G20 to do so, as a bridge between east and west, and north and south,” he said. “A lot of companies feel that given its size, given its young population, given its inevitable force in international affairs, India is a place where they should be.”

Indeed, 2022 was a momentous year as India crossed the magical exports figure of $400 billion, and welcomed the first indigenous aircraft carrier INS Vikrant as Prime Minister Modi has said.

In 2023, amid the stark clouds of uncertainty and fears of a global recession, the country, although not entirely insulated from such external shocks, is expected to be a key global growth engine and record the best performance of any major economy.

World Bank Forecast

The World Bank has revised its growth forecast for the Indian economy to 6.9 per cent from 6.5 per cent even as most agencies have downgraded similar predictions for all major economies. Compare this growth pace to just 0.5 per cent for the United States and 4.3 per cent for China.

And when compared to the estimated global growth rate of 1.8 per cent, the predicted growth is astounding, given the severity of headwinds afflicting the global economy.

The Government of India has set for itself the goal of becoming a 'developed' economy by 2047.

Most populous nation

Economists argue that if India, which is expected to replace China as the most populous nation on the planet, can maintain its momentum and overtake Germany as the world’s fourth largest economy in 2026, topple Japan from the number three spot by 2032 and become only the third country with GDP worth $10 trillion by 2035. For the next several decades, as the largest country in terms of population accounting for 1/6th of the global population, India will remain the biggest contributor to the global workforce, reaping what economists call its “demographic dividend.” The country has a working-age population of more than 900 million people that could hit more than one billion over the next decade. Many of these workers are entrepreneurial, English-speaking, and digitally literate, said Ila Patnaik, Chief Economist at Indian conglomerate Aditya Birla Group.

Critical Thresholds

Under the most bullish scenario, India is likely to cross the critical thresholds of $5 trillion, $10 trillion, and $20 trillion in market exchange rate terms, in FY28, FY36, and FY45, respectively as per some analysts.

A testament to the resilient dynamism of the country is the spotlight the nation has grabbed at the just concluded World Economic Forum in Davos, where according to reports, India has shown up in force as the global economy looks for a new powerhouse.

Looming recession

A host of geopolitical and geo-economic developments, including the Ukraine conflict, US-China rivalry, the increasing fragmentation of the world, a looming recession that threatens to engulf one-third of the globe, growing protectionism, and on-shoring or reshoring trends are indeed providing a tailwind to India’s aspirational growth.

As the global economic epicentre shifts to Asia, India, and Vietnam are expected to be the big beneficiaries as companies move toward a 'China-plus-one' strategy, supply-chain analysts say. India’s economy, which currently stands at nearly $3.5 trillion, presents a clear alternative to China as an investment destination as Western business leaders look to 'near-shoring' and 'friend-shoring' or boosting economic cooperation with countries that have similar values.

Growth Driver

According to Bloomberg data, Apple Inc.’s three key Taiwanese suppliers have won incentives from Modi’s government to boost smartphone production and exports. Shipments more than doubled to top $2.5 billion of iPhones from April through December.

Morgan Stanley predicts that India will drive a fifth of world expansion this decade, positioning the nation as one of only three that can generate more than $400 billion in annual output growth. Global manufacturers are looking beyond China, as the US-China chip war intensifies. The government led by Prime Minister Narendra Modi has stepped up to seize the moment by spending nearly 20 per cent of its budget this fiscal year on capital investments, the most in at least a decade.

Startup Ecosystem

India’s startup ecosystem has come of age and is one of the world’s most vibrant, generating unicorns in droves every year. The ‘Make in India’ campaign, which was launched in 2014, is making a positive impact by increasing production capacities across various manufacturing sectors and filling factories with workers making products the world wanted to buy.

According to data from McKinsey, while the agenda of boosting manufacturing to 25 per cent of GDP has proven elusive, the ratio nevertheless rose to 17.4 per cent in 2020 compared with 15.3 per cent in 2000. Today, India has a large infrastructure that is totally digitalised. For instance, the entire railway network, and power sectors are fully digitalised. Even the shipping lines are all dependent upon digital infrastructure. That puts a heavy weight on cybersecurity tools the country has deployed, which with the help of AI, India is taking forward to strengthen its cybersecurity efforts.

Bright Spot

Rajat Dhawan, Managing Partner of India at McKinsey, believes that India is at the cusp of a new era and remains a bright spot in the world. Gautam Kumra, Chairman of Asia at McKinsey, also highlighted that India, Indonesia, and Vietnam are bright spots in Asia.

International Monetary Fund’s Deputy Managing Director, Gita Gopinath said India is very much on the world stage. “I see a lot of businesses, a lot of companies looking to India as an investment destination as they try to diversify away from other countries, including China.”

According to an Ernst & Young report, the Indian economy is likely to reach the $26 trillion mark by 2047, the 100th year of the country’s independence. The EY report said that the per capita income is expected to increase to $15,000, putting the country among the ranks of developed economies.

Economic Reforms

Economists observe that the accelerated pace of economic reforms of the last few years in fiscal, digital, and physical infrastructure, and social inclusion has positioned India for higher and sustainable growth. This, together with the largest, broadest, and deepest labour pool, with a relatively inelastic labour market, provides a long runway for improving productivity at a pace faster than growth in wages. This enhances the global competitiveness of enterprises doing business in India.

Among the key enablers is the services exports which have grown by 14 per cent over the last two decades to $254.5 billion in 2021-22. A large part of services exports is from the information technology sector.

Digitalisation

Digitalisation too is an enabler. The large telecom subscriber base of 1.2 billion and 837 million internet users combined with the government’s focus on building digital platforms have laid foundations for a digital economy, enabled the development of a robust digital payment ecosystem, and strengthened governance.

The report underscores the growth trajectory of the Indian economy, which is projected to be the highest for any large economy over the coming decades. It also cites key enablers that will underpin the country’s development over the next 25 years that will unleash business opportunities across sectors and will significantly enhance India’s global competitiveness. It recommends ensuring macro-economic stability and resilience and continued thrust on reforms, which will be especially relevant in the backdrop of ongoing geo-political conflicts, inflationary pressures, and slowing global growth.

Transformative Impact

Carmine Di Sibio, Global Chairman and CEO at EY, said:“India offers a unique investment opportunity as the world struggles with heightened consumer demands and increased geo-political pressures. With the biggest talent pool, an accelerated pace of economic reforms, breakthroughs in energy transition, and rapid digital transformation, the long-term growth trajectory is clearly positive. India demonstrates the immense potential and is positioned to make a truly transformative impact on the world stage.”

Rajiv Memani, Chairman and Managing Partner at EY, India noted that the entrepreneurial spirit of the private sector and policy measures of the last few years in the domains of fiscal, digital, physical infrastructure, and social inclusion have uniquely positioned India for higher and sustainable growth.

Employment generation is likely to be India’s biggest challenge in 2023 although the unemployment rate also remains relatively low in India as compared to global levels. According to Centre for Monitoring Indian Economy (CMIE) data, rural unemployment stood at 8.5 per cent, whereas the urban unemployment rate had crossed 10 figures in December.

— issacjohn@khaleejtimes.com

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