The end of the coolest May in 36 years in India’s capital New Delhi brought the bracing news from the National Statistical Office (NSO) on May 31 that the Indian economy clocked a growth rate of 7.2 percent for FY23. This matters more when the inflation rate has slowed to an 18-month low of 4.7 percent. Contrast this with European economies and those in the Americas which are seeing double-digit inflation in some cases, and next to no growth or recession as in Germany, the biggest economy in the European Union (EU).
India is now — and has been for some time — the fastest-growing major economy in the world, described by the World Bank, the International Monetary Fund (IMF) and other multilateral lending agencies as a ‘bright spot’ in a sea of gloom. And, despite our low per capita income, spread over 1.42 billion people, we are still the third largest already in purchase power parity (PPP) terms.
This 7.2 percent GDP growth is on the back of 6.1 percent growth achieved in the January to March quarter that ends the financial year 2022-23. Of course, this 7.2 percent closing for fiscal 2022 comes after a 9.1 percent growth in fiscal 2021-22, to remind us of what is not just possible, but likely in the years ahead. Particularly, as it saw a 13.1 percent growth in April-June 2022. But even if we stay at no more than a sedate 6 to 7 percent growth year on year in the decade ahead, we will still become the third richest major economy.
India is currently at $3.3 trillion in GDP. The projection is to reach $5 trillion in 2025, delayed somewhat by Covid and the vagaries of the Russia-Ukraine War. And a figure of $7 trillion or more by 2027 when we would have overtaken both Germany and then Japan.
Our foreign currency reserves have stabilised close to $500 billion, even as we extend rupee trades and UPI digital trades with a number of nations. This is despite the rupee weakness and its declining value against the US dollar. The rupee is weak because the dollar is strong and we hold most of our reserves in US dollars. And because we run substantial trade deficits with most of our biggest trading partners, including America and China. This current scenario is on account of improved numbers from agriculture, at a 5.5 percent expansion. There are increasing attempts and awareness of modernisation in methods, resulting in efficiency, better yields, superior storage and cold-chain facilities. There are still too many people employed in agriculture. This is giving way to sweeping mechanisation, more than ever before.
But the fact is, even with inefficient agriculture, low yields, bad storage conditions, and massive wastage, we are food grain surplus enough to feed several other countries in need, as was seen during the pandemic. Our sugar — again in surplus — is being exported at a good price currently.
Manufacturing, which is featuring much more strongly on the economic map than heretofore, saw a 4.5 percent surge in the January-March 2023 quarter, compared to a minus 1.4 percent in 2021, and just 0.6 percent growth a year ago. It is expected to seize full 5 percent points by 2030 from the expanded GDP pie. That will employ many people in the process, which is one of the reasons why it is being given high priority by the government also. Mining, up at 4.3 percent in the final quarter of fiscal 2022, compared to 2.3 percent in the same quarter a year previous. It has revived on the back of fewer environmental restrictions. The construction sector grew 10.4 percent in the fourth quarter, up from 4.9 percent in the corresponding quarter in fiscal 2021, coming out of the doldrums, despite the Modi government’s sustained attack on black money often associated with this sector. The government should encourage this sector because it has the ability to absorb much of the rural migration to cities in search of work as well as contribute almost — if not more handsomely — to the GDP, than agriculture.
The services sector such as trade, hotels, transport, and communication surged to 9.1 percent in the fourth quarter, up from 5 percent a year before. People have shrugged off the pandemic and are moving themselves as well as goods and services. Tourism too has picked up, as has railway and air travel in modernised facilities. There is also some fiscal consolidation based on good revenue collections, and this has actually reduced the fiscal deficit in 2022. By 2025, the government expects the fiscal deficit to be no more than 4.5 percent of the enhanced GDP figures.
To paraphrase an oft-quoted saying, you can’t keep a good economy down. This has relevance because many developed economies which prefer to look at India as a place to sell to, are nervous about opportunities going forward, particularly with increased aatmanirbharta and the price competitiveness India offers. The nation is actively wooing the relocation of supply chains from China, and a big company, amongst the very biggest, Apple, has responded to an extent. Semiconductor manufacture may soon come to India. In a decade, India can become a significant exporter of military equipment as well.
Some analysts, however, are projecting lower numbers in 2023-24, lower than fiscal 2022 estimates of just 6.5 percent, citing global headwinds and lower exports. The lack of enough capital expenditure from all, except the top tier such as Tata, Reliance and Adani in the private sector, is also a projected drag on growth. However, consumption has picked up quite sharply and could blunt this pessimism. Again, there are those who think consumption is linked to higher wages, and may not go up as much as all that.
Government expenditure on infrastructure development is expected to continue soaring as it tries to unclog all logistical bottlenecks to reduce costs by as much as 5 percent. So, this development acts as a foundational force for the Indian economy and is also being used to connect neglected parts of the country. The infrastructure sector embracing coal, fertiliser, and electricity showed 7.7 percent growth in Jan-March 2023 and should continue to boom, based on demand.
Arch-rival China, which is now being accused of inflating its GDP numbers and other statistics, grew its economy by only 4.5 percent in the Jan-March 2023 quarter. China claims $18 trillion in GDP even now, but objective observers from outside peg it more realistically at between $7 to $9 trillion, not very much more than double or treble that of India. This, despite 30 years of tremendous growth from the 1980s in the Deng years. But this was before the woes of a global slowdown, Covid, the war in Ukraine, and its own belligerence resulting in global supply chains being altered. This has coincided with very low growth or recession in most of the West.
The lack of revenue and a massive accumulated external and internal debt of over $23 trillion has also stymied most of China’s Belt and Road projects abroad. However, as a totalitarian near dictatorship, many Western investors and analysts have confidence in the Chinese story, and its ability to deliver, over and above the tumultuous volatilities of a democracy such as India. It is this perception, based on years of a profitable relationship, that prejudices many Western analysts to ignore the considerable distance in supply-side reforms that India has travelled in the last nine years of the Modi administration. They continue to carp about underperformance against India’s potential and rich equity valuations in the Indian stock market.
Some, like Ridham Desai, now MD at Morgan Stanley, point favourably to India’s policy reforms, particularly transformative infrastructure development, massive growth in broadband subscribers, digital transactions that now account for 76 percent of GDP, steady growth in GST collections, and a competitive corporate tax structure.
However, takers for the India story are largely amongst the lending and rating agencies, Western countries and their politicians who think they can turn it to their advantage, and the denizens of the domestic market. The domestic market is the primary driver for India and has the ability to take it to number three even without a significant export market, albeit slower.
There is also some scepticism about the possible strength of the Modi and BJP win in 2024, a consecutive third term. If there is less than a majority for Prime Minister Narendra Modi and the BJP on its own, it will seriously affect India’s progress in future. This, particularly, with a highly Socialist section amongst the influential Opposition parties, wedded to a culture of populism and ‘freebies’. The BJP under PM Modi’s leadership would be weakened and it would have to compromise a lot at the head of a ruling coalition.
Some other long-time India backers, like Christopher Woods, currently Global Head of Equity Strategy at Jefferies, says India’s resilience, both in its real economy and its stock market, has been impressive. He also thinks the stock valuations have been matched by earnings growth now. And he says, investors have begun to sell China, implying that more investment will come to India. Also, though Woods did not say this, the monetary tightening stance of the RBI, which took up interest rates nearly 300 bps, is now over. As interest rates start coming down after a holding period, it will set off another economic boom in the real economy and a bull run in the stock market.
There are others, ethnic Indians like Ruchir Sharma of Rockefeller Capital Management and Fareed Zakaria of CNN, both long-term commentators and critics on the socio-politico-economic scene in India, that have turned unequivocally bullish.
The tide has turned. It is India’s time and so we can surely expect to be presented with a very different set of options within a decade. Today’s economic numbers are a harbinger of this.
The writer is a Delhi-based political commentator. The views expressed in this article are those of the author and do not represent the stand of this publication.
Comments
0 comment