India will emerge as an economic superpower in the upcoming global economic scenario

Ronit Kawale
Ronit Kawale - Senior Editor
12 Min Read

Although the risk of global recession has diminished, inflation concerns remain imminent, re-increasing risks to global financial stability.

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The IMF, the World Bank and major rating agencies have predicted a further slowdown in global growth this year. The recent escalation in conflict in the Middle East, financial tensions, persistent inflation and a slowdown in international trade are downside risks to global growth.

In addition, a potential debt crisis looms over the global economic landscape. The International Monetary Fund's (IMF) Global Debt Monitor reported that total global debt, private and public, has risen to US$235 trillion, equivalent to 238 percent of global GDP.

There are also serious concerns that fiscal prudence could be left behind, as more than half the world's population is going to vote this year.

But amid this pessimism, international agencies and top rating companies are looking at India as the emerging economic superpower of the world.

India's central bank said in its monthly economic review, “There is growing optimism that India is on the cusp of a long-awaited economic growth spurt.” India is well positioned to remain the fastest-growing major economy, showing resilience amid geopolitical challenges and supply chain pressures.

The Organisation for Economic Co-operation and Development (OECD) estimates that global growth will be 3.1 percent in 2024 and 3.2 percent in 2025.

But India is projected to grow at 6.6 percent, the fastest among major emerging markets. China is projected to grow at 4.9 percent and Brazil at 1.9 percent.

Among advanced economies, the US, UK and the euro zone are projected to grow at 2.6, 0.4 and 0.7 per cent, respectively.

Recently IMF, World Bank, Moody's, S&P and many other rating agencies have revised India's growth rate.

The IMF's April 2024 World Economic Outlook highlights the expected strength of the Indian economy in 2024 and 2025, attributing this to strong domestic demand and a growing working population.

RBI has said in its monthly economic report that the dramatic reduction in poverty in India has drawn the attention of global observers. Prime Minister Modi has said in his election rallies that 23 crore people have come out of poverty in India in the last 10 years.

The World Bank has also said that at the peak of the Covid-19 pandemic in 2021, only 12.9 per cent of India's population was living on USD 2.15 a day, which is the standard of extreme poverty.

Recent estimates suggest that extreme poverty in India is close to being eradicated, a remarkable change for a country once considered a byword for poverty.

If we talk about the development work done in the last ten years, India's power sector in the infrastructure sector has achieved 100 percent electrification.

According to government data, rural areas now have access to electricity for 20 hours a day, while urban areas have 23.5 hours. Additionally, India has become the world's fourth-largest renewable energy producer.

India is rapidly pursuing research and innovation in the field of green hydrogen energy. The government has announced several incentive schemes for investment in this sector.

The World Economic Forum (WEF) estimates that green energy will contribute 50 million net jobs and US$1 trillion in economic impact by 2030.

India's road and highway sector has grown rapidly in the last ten years. By the end of December 2023, India will have about 66.71 lakh kilometres of road network, the second largest in the world.

The digital revolution in India is another area where the country has taken a lead, with seven countries, including France, UAE, Sri Lanka and Mauritius, adopting India's UPI for financial transactions.

With the highest number of digital transactions globally and broadband connectivity reaching over 93 percent of villages, India is fast becoming the world's digital powerhouse.

E-commerce platforms such as the Open Network for Digital Commerce (ONDC) are expanding access to the online market for small businesses.

The government's emphasis on digital public infrastructure is not only increasing productivity, efficiency and employment, but also adding hidden revenue to the government coffers.

On the trade front, despite the slowdown in international trade, India's exports reached an all-time high of US$778 billion in FY24.

India has become the seventh largest exporter of services globally and the second largest exporter among developing countries. According to UNCTAD, India will overtake the world average in services exports in 2023.

According to FDI Intelligence, India will be among the top 10 economies in terms of foreign direct investment (FDI) rate in the year 2024.

Despite a net outflow of US$1.1 billion from Indian equities in April, the country's forex reserves will rise to US$21.7 billion in 2024, the highest among major reserve-holding countries.

The foreign exchange reserves now stand at US$644.2 billion, covering more than 10 months of projected imports for 2024-25 and almost all external debt till end-December 2023.

Gross inward foreign direct investment (FDI) remained stable at US$ 71.0 billion during 2023-24, as against US$ 71.4 billion a year ago.

RBI data shows that more than 60 per cent of FDI equity inflows were directed towards manufacturing, power and other energy, computer services, financial services, and retail and wholesale trade.

Singapore, Mauritius, the US, the Netherlands, Japan and the UAE accounted for more than 80 per cent of the investments. However, net FDI during 2023-24 declined to US$10.6 billion from US$28.0 billion a year ago, mainly reflecting higher repatriations.

Speaking at the annual summit of industry body CII on May 17, Finance Minister Nirmala Sitharaman asked the industry not to ignore manufacturing, as some economists are suggesting.

“India also needs to increase its share of manufacturing in global value chains with the help of policies. So we need more sophistication in our product manufacturing and we also need to look at how this can be given the best policy support,” he said. The IMF has projected that India's contribution to global growth will be 18 per cent for five years starting 2023. So, between 2023 and 2028, we are looking at a dynamic India contributing 18 per cent to global growth.

Reacting to the finance minister's emphasis on manufacturing, eminent banker KV Kamath told ANI, “If India grows at 7-7.5 per cent, manufacturing will happen on its own. It will happen on its own. I see what has been done, the clean balance sheets, the opportunity in front of (banks), the growth we are seeing, the Indian economy should do very well.”

On India's growth story, Piramal Group Chairman Ajay Piramal told ANI, “We will be the third largest economy, possibly a US$40 trillion economy. Even now, next – I think by 2029, we will be the third largest economy. So only the US and China will be ahead of us. So this is a very big progress that the country is making. ,

Government policies are promoting new and innovative sectors in the manufacturing sector. Production Linked Incentive (PLI) schemes for 14 identified sectors with a total outlay of about Rs 1.97 lakh crore are at various stages of implementation.

Beneficiary sectors include EV, EV batteries, hydrogen electrolyser, pharma, food processing and electronics.

The electric vehicle (EV) segment is a big game-changer in the manufacturing sector. In March, the government came out with a new EV policy to attract investments in the sector.

The new EV policy allows completely built units (CBUs) to be imported at a concessional 15 per cent duty for five years if a company invests USD 500 million in setting up a manufacturing unit in India.

The new policy is likely to come into effect by the end of July. Companies will be given 120 days to apply under this scheme. This will open up opportunities for international EV manufacturers, including Tesla, to enter India.

In the field of electronics, India has become a major player in the mobile phone market. In the last ten years, mobile phone manufacturing in India has grown 21 times from Rs 18,900 crore to Rs 4.1 lakh crore in 2014-15.

Riding on the back of iPhone exports, India is set to become the world’s fifth-largest mobile exporter, with revenue expected to grow from US$11.1 billion in FY23 to US$29.1 billion in FY24.

Recent CPI data from India show high growth in consumer demand from the rural market, indicating strong growth potential in the coming years.

Goods and Services Tax (GST) collections in April 2024 recorded a growth of 12.4 per cent year-on-year, breaching the Rs 2 lakh crore mark for the first time.

The S&P Global Outlook report states that the Indian consumer market is expected to double by 2031. Consumer spending on food in India is projected to grow to US$1.4 trillion, while spending on financial services is expected to reach US$670 billion.

All this indicates that over the last decade India has become a major player on the global scene, attracting the interest of investors, policy makers and businesses from around the world.

Growth rate more than double that of most emerging market economies, low tariffs, low labour costs, special incentives by the Indian government will continue to be the key attractions for investors.

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