Optimism continues as Indian economy expects to register 6.8% growth in 2023

The Economic Survey tabled by Finance Minister Nirmala Sitharaman in the Lower House of Parliament on Tuesday, said the Indian economy will grow 6% to 6.8% in the next financial year starting April 1. Still, it will be the fastest growing economy in the world, even as the IMF has projected global growth to be 2.9% in 2023.

“Global growth remains weak, but it may be at a turning point. We have slightly increased our 2022 and 2023 growth forecasts. Global growth will slow from 3.4% in 2022 to 2.9% in 2023 then rebound to 3.1% in 2024,” Gita Gopinath, IMF’s First Deputy Managing Director said in her tweet on January 31

According to the Economic Survey, the Indian economy is expected to grow at 7% in real terms for the year ending March 2023, this follows an 8.7% growth in the previous financial year.

Earlier, India’s National Statistical Office has pegged India’s economic growth at 7% in the 2022-23 financial year, while RBI’s estimation is that the country will achieve 6.8 % growth in 2023.

The World Bank also predicted India’s growth to be 6.9% in the 2022-23 financial year, while the IMF said its projection for India is 6.8 % and will remain unchanged for the current fiscal ending March 31, indicating clearly how the country is, in reality, going to be a bright spot amid the global slowdown—triggered by Covid-led lockdowns and Russia’s war on Ukraine.

Backed by the middle class, which rose from 14% in 2004-05 to 31% in 2021-22, India aims to become a $5 trillion economy by 2025 and the third largest economy of the world by 2035. While this has been endorsed by the Centre for Economics and Business Research, a British consultancy firm, India is marching gracefully ahead to become a manufacturing hub in the world by 2030.

In fact, as indicated by the Department for Promotion of Industry and Internal Trade (DPIIT), India has become one of the most attractive destinations for investment in the manufacturing sector. Aggregate inflows in the manufacturing sector added up to $100.35 billion between April 2000 and June 2021. In 2021-22, the share of the manufacturing sector in total capital expenditure was 49%, up from 16% in pre-Covid 2019-20, according to a ICRA report published in November 2022.

Amidst this, introduction of Production Linked Incentive (PLI) scheme across key sectors like automobile and auto components, electronics and IT hardware, telecom, pharmaceuticals, solar modules, metals and mining, textiles and apparel, white goods, drones and advanced chemistry cell batteries, has added to Indian manufacturers’ ability to compete globally, enhance exports and make India an integral part of the global value chain.

Bloomberg in its recent report talked high of the Indian economy, stating economic transformation in the country is kicking into high gear. “Global manufacturers are looking beyond China, with Prime Minister Narendra Modi stepping up to seize the moment. The government is spending nearly 20% of its budget this fiscal year on capital investments, the most in at least a decade. Modi is closer than any predecessor to being able to claim that the nation—which may have just passed China as the world’s most populous–is finally meeting its economic potential,” Bloomberg said.

This would not be an exaggeration, given the fact China is expected to grow 3%, as per the IMF’s latest economic outlook. Owing to widespread lockdowns, unprecedented downturn in property market and severe heatwaves, China saw its economy expand by just 3 percent in 2022—the worst performance in nearly half a century. The country’s gross domestic product grew 2.9 percent in the fourth quarter, China’s National Bureau of Statistics in its report. Industrial production slowed to 1.3 percent in December, while retail sales in the entire 2022 dropped 0.2 percent.

Exports of goods plunged 9.9 percent on account of weakening global demand for Chinese goods, as well as disruption to logistics networks and labour shortages due to Covid induced lockdowns. Shanghai, Shenzhen, and Beijing, considered as economic powerhouses and contributing more than 12 percent of China’s gross domestic product, will take time to normalise its activities in retail, construction, and logistics.

Given this, investors want to strategize their business with China which is gridlocked in rivalry with the US and then Beijing itself not looked favourably by a large number of manufacturers from Japan, Germany, and the US due to supply chain disruptions, rising labour costs and growing strategic concerns around the concentration of production.

In view of this “India is emerging as a viable alternative, given some of the inherent advantages like a large labour pool with a demographic advantage, a growing consumer market along with government’s policy focus on ramping up the manufacturing base,” Gaurav Kapur, IndusInd Bank’s Chief Economist said.

India and Vietnam will be the big beneficiaries as companies move toward a “China-plus-one” strategy, say some analysts. “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,” Bloomberg said. The US-based news outlet further said, “As powerhouses from China to Germany contend with slowing growth, the stakes are rising to find another nation equipped to propel the global economy.”

According to Morgan Stanley, a multinational investment and financial services company, 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. Of course, such optimism is not without any reason; rebound in private consumption, higher capital expenditure (Capex), near-universal vaccination coverage, rising in housing market inventory, strengthening of the balance sheets of the corporates, well-capitalised public-sector banks ready to increase the credit supply—are key factors driving India to become a country of substantial force on the economic front.

To stay the course of the high economic growth, path-breaking measures such as PM GatiShakti programme, National Logistics Policy, and the Production-Linked Incentives schemes to increase manufacturing output--are proving as a much needed booster dose, feel some analysts.