Indian economy: Shining like Pole Star amid global darkness

India’s economy grew faster than the government’s expectations last year, Bloomberg said after official data released last week showed gross domestic product in 2022-23 increased 7.2% higher than the 7% median estimate in a Bloomberg survey as well as the government’s forecast made three months ago. Investment and consumption led to this growth. The World Bank in its latest India Development Update said India’s overall growth remains robust and is estimated to be 6.9% for the full year with real GDP growing 7.7% year-on-year during the first three quarters of fiscal year 2022-23. While the IMF said India is on its course to remain a leader of global growth among larger economies of the world. According to the April 2023 projections of the IMF, world growth is expected to be 2.8% for 2023. From 2023 to 2028, global growth is expected to average close to 3.0%. In comparison to this, India’s average growth is projected to be 6.1%. This growth would require, as per the IMF, a nominal investment rate of close to 34% In its latest report titled ‘How India has Transformed in Less than a Decade ’Morgan Stanley, the global investment bank said India has witnessed a significant transformation in several areas since 2014 and will emerge as a key driver for Asian and global growth. “In a short span of 10 years, India has gained positions in the world order with a significant positive consequence for the macro and market outlook,” Morgan Stanley said in its report while highlighting 10 big changes in India in the past one decade. These changes, as per the report, include supply-side policy reforms, formalization of the economy, Direct Benefit Transfer, Insolvency and Bankruptcy Code, focus on FDI and flexible inflation targeting. The primary impact of these changes is the steady rise of manufacturing and capex as a proportion of the GDP. Share of both will gain by 5% each. In addition to this, India’s export market share will rise to 4.5% by 2031, which is nearly twofold from 2021 levels, while the per capita income is expected to clock in at $5,200 within the next decade, Morgan Stanley said in its report. Post Covid opening and its impact The opening of the economy post Covid-19 pandemic resulted in 14% growth for trade, hotels, transport, and communication services, while sectors like construction saw growth at 10%, utility services at 9%, financial, real estate and services at 7.1%, public administration, defence and other services at 7.2% respectively. The farm sector which grew 5.5% year-on-year in the quarter compared with an upwardly revised 4.7% in the previous quarter, would see a healthy growth as a normal monsoon has been predicted in the next four months. The manufacturing sector, which has accounted for 17% of the country’s economy for the past one decade, expanded 4.5% year-on-year in the January-to-March quarter, compared with 1.4% contraction in the previous three months. The sector has received a significant lift after the government announced production-linked incentives for 14 sectors with an intended outlay of Rs 2 lakh crore. This move has been taken in a bid to expand manufacturing in areas like semiconductors, electric vehicles, defence equipment, solar panels, batteries, and IT hardware. Global Picture India’s 7.2% growth in GDP also sounds very attractive especially when we see the growth of other economic powerhouses of the world with the US economy growing at a rate of 2.1% in the financial year of 2022, Germany at 1.8%, UK at 4.1%, China at 3%, Japan at 1%, France at 2.6%, Australia at 2.7%, South Korea at 2.6%, Brazil at 2.9%, South Africa at 2% and Russia saw a negative growth of -2.1% amid the ongoing war with Ukraine. Such a sound growth rate has made India the fastest-growing economy among BRICS and QUAD nations. The following numbers are also in line with the growth of the financial market of India, while the other major market indexes such as S&P500, Nasdaq, Dow Jones of USA, FTSE of UK, and DAX of Germany all traded well below their lifetime high, India’s Index of Nifty 50 formed a lifetime high of 18,887; Nifty Bank of 44,498; BSE 30 of 63,583 showing the resilience of Indian economy and belief in it of both domestic and foreign investors. Inflationary Pressure Countries across the globe are currently facing high inflation on account of the combined effect of the pandemic and disruption of the global supply chain due to the ongoing Russia-Ukraine war, especially in the energy, agriculture, and manufacturing sectors. The Reserve Bank of India (RBI) took timely measures with monetary policy decisions in the financial year of 2022-23 to counter an increase in the inflation rate, while seeing that it does not have any adverse effect on the growth of the economy. As a result, inflation slipped to an 18-month low in April 2023 to 4.7%. Conclusion Indian economy looks in a sweet spot with a promising growth trajectory expectation, while it also shows the effect of various government reforms and initiatives such as ease of doing business, and investment in key sectors such as agriculture, manufacturing, healthcare, energy, and technology, giving the country a chance to become a global leader