Indian Economy Poised To Clock A High Growth

The International Monetary Fund (IMF), in its latest update to the World Economic Outlook, has pegged India’s GDP growth at 7% this financial year and at 7.2% next fiscal. The IMF forecast vindicates the projections in the Economic Survey report released by the Government just before the Union Budget 2019 and sends clear signals that in spite of strong global headwinds, India’s economic growth would remain robust.

Although the IMF has cut the growth forecast this fiscal from 7.3% to 7%, contextualised in the backdrop of the protracted trade wars and protectionism; slowdown of major economies, including that of China and the downside risks being faced by global investments, this growth projection is truly a feather in the cap of India’s growing economy. A sustained growth coming in the light of weak global signals points to the fact that growth has largely been contingent on strong domestic economic fundamentals, major economic policy reforms and fiscal discipline.

India’s economic growth over the past five years has hovered around 7.5%, making it one of the fastest growing economies in the world. Measured in Purchasing Power Parity (PPP) terms, India is currently the third largest economy in the world, next only to the US and Germany. Over the past few years, India has unleashed a slew of major economic reforms such as introducing the Goods and Services Tax (GST) and ushering in the Insolvency and Bankruptcy Code (IBC). While the GST is hailed as one of the finest experiments in cooperative federalism, the IBC has helped offer a one stop solution for resolving insolvencies and making the process of doing business less cumbersome. Such reforms have been lauded in the recent past not only by the IMF, but also other international economic organisations such as the World Bank and the Asian Development Bank. Quantum leaps in various international economic benchmarks such as the ‘Ease of Doing Business’, ‘Trading Across Borders’ and the Global Innovation indices speak volumes about India’s relentless pursuit of a high growth trajectory.

India is strongly committed to continue and even accelerate the slew of reforms to further ease doing business and attract foreign investments. India’s foreign direct investment (FDI) inflows in 2018-19 remained strong at US$ 64 billion, marking a 6% growth over the previous year. To target investments in the range of US$ 300 billion per annum, the Government has plans to open up sectors like aviation and insurance sectors to FDI and deepen the markets to attract long term corporate bonds. India remains steadfast in its endeavour to achieve Prime Minister Narendra Modi’s vision of a US$ 5 trillion economy by 2024. The Indian economy has touched US$ 2.87 trillion till now. Doubling this over the next 5 years or so, shall require a growth of around 8%. This growth is to be driven by continued structural reforms, access to low cost capital and big time infrastructural spending-the tone for which has already been set by the Government in the first budget after being voted back to power. In order to give a fillip to the ‘Make in India’ initiative, the government will launch a scheme to invite global companies through transparent competitive bidding process to set up mega-manufacturing plants in ‘sunrise’ and advanced technology areas and provide them investment linked tax benefits.

While maintaining a high growth, India ensured its macro-economic stability by containing inflation within 4 per cent and by having a manageable current account deficit to GDP ratio. While the IMF estimates call for praise, India not be complacent on its march. The silver lining is India’s commitment to fast track its reform agenda. Easing of laws and further fiscal consolidation, positive changes in the banking and labour sectors and reduction of public debt shall unleash the ‘animal spirits’ in the economy and ensure that India is one of the prime movers of global growth and innovation in the years to come.

Script: Satyajit Mohanty, IRS, Senior Economic Commentator