Unleashing India's economic potential: risks and opportunities

Key strategies for long-term growth

According to a report by the Centre for Economic and Business Research, India may overtake France in 2022 to become the sixth-largest economy in the world. The same report also highlights that the US$22 trillion GDP of the United States is larger than the combined GDP of 150 countries. And just four countries — the US, China, Germany, and Japan — account for over 50% of world GDP. The feel-good factor is that the report predicts India to overtake Germany by 2031 to become the third-largest economy in the world with a GDP of more than US$6.8 trillion. The World Economic League (WEL) estimates that India will overtake all European countries to become the third-largest economy in 2031. But where will this growth come from, and what factors and strategies will drive this growth?

Answering this question, one of the panelists said, "growth won't come by imitating China." This is because what China did three decades ago, in a different world with different technology, strengths and demographics, cannot give us the same growth trajectory today. We will need to be far more acutely aware of our carbon footprint to achieve similar growth. The second factor is technology. When China built infrastructure 30 years ago, it relied on a large labor force. Today, with changes in technology, we can have robotics replace that large labor force. The third factor is culture. While there is some large-scale production in India, the need to discipline our workforce to match the quality produced by the Chinese workers is immediate. The biggest factor that will drive long-term growth in India is our demographics - our young, English-speaking population.

Can India aspire to be a developed country without a solid manufacturing base?

India has enormous untapped potential to become a global manufacturing hub, but for decades, the service sector has been the driving force in our country's economic growth. Also, growth in manufacturing has been abysmal despite cheap labor and other resources.

While there has been an uptick in manufacturing growth recently, it still needs more push — something the Government must focus on if it wants to ensure steady economic growth.

However, according to one of the panelists, India's strategies to boost the manufacturing sector will have to be different from that of China. We will need to develop different reforms, particularly the financial sector and banking reforms, that will help boost small-scale manufacturing instead of large-scale. Several Banking Committee reports have also indicated that making credit available to smaller industries might become vital to accelerating manufacturing in India. Making credit available to small-scale firms means two things:

1. Larger firms should go to a bond market, which means that there needs to be a bond market. As the Government is often the biggest player in the bond market, it would create an  ecosystem by setting up the Public Debt Management Agency (PDMA).
   
2. Banks should lend money to SMEs and help them grow. This would lead to healthy competition in the industry where banks compete to find the best projects to invest.
   

India to become 3rd largest economy in 2031, says CEBR - CEBR

Future of Indian economy: brighter days ahead

There are optimistic forecasts of India's GDP growth rate in fiscal 2023, ranging from 7.5% (the Prime Minister's advisory council) to 8.5% (IMF) and 9.1% (Goldman Sachs). After successive waves of the paralyzing COVID-19 pandemic and its variations, this news is a treat to sore eyes. 

Adding to this optimism, Dr. D.K. Srivastava, EY India Chief Policy Advisor, said, "The Indian economy is showing significant shoots of revival, with different agencies predicting a strong growth in FY21-22 and FY22-23. So, chances are we would be leading the global growth performers, including China, provided we play our cards well."

Commenting on India's manufacturing capabilities, Dr. Srivastava said that we must be Atmanirbhar (self-reliant) in defense manufacturing, even if that requires a relatively large incremental capital-output ratio. The demographic changes in the country mean that India would have a competitive advantage to substitute for the aging population across the world by our young population.

Shifting the conversation to India's immediate growth prospects, Dr. Srivastava said, "With real GDP growth projected by the RBI at 17.2% for the first quarter and 7.8% for the second quarter of FY22-23, country's economy is relatively well-positioned on the path to recovery. Both IMF and OECD are forecasting a medium-term growth in the range of 7%, which I think is eminently feasible provided we are willing to reconsider and recalibrate our fiscal consolidation path."

"We may not reach China's growth levels, but if our growth rate could be pushed to over 8%, and if we can support that by suitable fiscal and monetary policies, we can look forward to the remaining part of the century as India's century," he concluded.