- The India story may come back if policymaking becomes sound, and policy uncertainty and flip-flops are reduced.
HDFC Chairman Deepak Parekh made observations about India’s economy on Monday that merit attention. Speaking at the World Congress for Accountants in Mumbai, Parekh said that India is not decoupled from the world, and will face some slowdown therefore, but that has not dulled his excitement over the economy’s prospects: “I do believe India can grow from a $3.4 trillion economy to a $7.5 trillion one within the next five years. For India, it is the pace of growth that is exciting”.
The economy’s size may hit the $7.5 trillion mark in five, six, seven or eight years, as the government also likes to say, but that’s not the main thing here. The point is that India’s economy continues to excite observers; there’s no let-up in the interest level. This contrasts sharply with the unanimously dire outlook for advanced countries like the US and the UK which may not be able to escape economic difficulties and pain from the macroeconomic and geopolitical dynamics playing out, as well as the erosion of confidence in economies that no longer look as promising as they did until recently – like China and Turkey. When was the last time the US economy had interest rates at 5%? How will the Chinese economy cope with Beijing’s bizarre and authoritarian covid protocols and the Biden administration’s trade assault?
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That India’s promise remains intact despite all the shifts taking place all around is, of course, both a good and bad thing. Good because it shows faith in the economy’s potential and resilience remains unscarred by the multiple challenges – both legacy bottlenecks such as weak capacities for policy making and implementation and newer ones thrown up by shocks such as covid and the shifting geopolitics. Bad because it can lead to complacency – as Mint SnapView has been highlighting ().
What’s needed is to strike the right balance between optimism and bleak projections. Yes, India was slowing down even before the covid outbreak. The scarring by the pandemic added to the complications. The war in Europe isn’t helping. Most importantly, the cumulative record of successive governments for disappointing policy decisions that hobble the economy remains largely unaddressed. Inflation will be a challenge for a few more quarters. The unemployment challenge remains intractable. And yet, the overall business mood isn’t as bleak as the noisy public narrative suggests.
What’s the case for optimism?
The aspiration used to be of 9-10 per cent Gross domestic product (GDP) growth. Even the most optimistic have given up on that hope now. But 6.5 to 7 per cent GDP growth, if sustained over years, will no longer be seen as disappointing, given the changed global context. For it reflects the economy’s inherent resilience in the midst of a global economic tumult. Remember, growth, unless accompanied by acute deepening of inequalities, reduces poverty and grows the middle class. The speed of this change can be slow or fast depending on the quality of growth, which is why it is important to ensure the right kind of policies are put in place for quickening the pace.
Parekh said that the source of his optimism is the expected rise in India’s middle class – fivefold to 25 million by 2031 from the present 5 million – alongside the expected rise in income per head from $2,300 to $5,200. He is right to feel kicked about the policies encouraging start-ups, roll-out of 5G services, and Gati Shakti, a national plan for infrastructure projects.
As also the strides in digitalisation and financial inclusion. Indians, not too financially literate, are nevertheless taking to digital payments, outpacing the Chinese and even some developed countries, something Mint SnapView has been pointing out.
This structural shift will lower costs, and broaden and deepen linkages in the economy, resulting in rising efficiencies and productivities, opening up new opportunities for business and livelihoods. Plus, the use of digital payments is shifting business and trade from cash, creating trails, improving traceability by tax collectors. The impact is beginning to show in tax collections, as Mint SnapView has argued. Thus, providing the government funds required for development and growth-enhancing spending heads.
Then, the global shift in consumption patterns is opening up opportunities India is well-placed to leverage, provided manufacturing and trade policies are corrected. Such as the electric vehicles segment. Led by the Tata Motors subsidiary, Tata Passenger Electric Mobility, which has earmarked ₹15,000 crore over the next three years, Suzuki Motor Corp ( ₹10,445 crore till 2026) and Hyundai Motor India ( ₹4,000 crore till 2028), car makers and ancillary suppliers have announced cumulatively investments of ₹70,630 crore over the next five years.
Finally, India benefits from shifting geopolitics and especially the heightened risk to global supply chains from their monopolisation by China. India wants to attract companies looking to diversify away from China, including in high-end manufacturing but especially in labour-intensive, low-skill manufacturing as a way of addressing India’s chronic problem of under-employment of labour. The India story may come back if policymaking becomes sound, and policy uncertainty and flip-flops are reduced. In fact, to demonstrate some of this will be the best way to end the over-pessimism in the narrative currently.
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