India to remain the fastest-growing economy in the world: World Bank report

Business Friday 04/August/2023 11:03 AM
India to remain the fastest-growing economy in the world: World Bank report

New Delhi: India recorded a growth rate of 7.2 percent in FY 2023, beating analysts' expectations, according to the National Statistical Office data. Clearly, India is the world's fastest growing economy. According to the World Bank's Global Economic Prospects released in June 2023, India would remain the fastest-growing economy in terms of both aggregate and per capita gross domestic product (GDP).

It retained India's FY 2024 growth forecast at 6.3%. It also stated, “Greater than expected resilience in private consumption and investment, and robust services sector is supporting growth in 2023.”

No wonder that India under the leadership of Indian Prime Minister Narendra Modi has registered a significant decline of 9.89 percentage points in the number of multidimensional poverty from 24.5% in 2015-16 to 14.96% in 2019-2021 according to recently released “National Multidimensional Poverty Index: A Progress Review 2023 by the NITI Aayog. With this, around 13.5% crore people came out of multidimensional poverty during the period. Multidimensional poverty index is a composite index that measures “acute deprivations in health, education and standard of living” using United Nations-approved parameters.

What comes from NITI Aayog's report is a very desirable development that the rural areas recorded the fastest decline in poverty from 32.59% to 19.28%. It is attributed to progress in hitherto populous and relatively backward states such as Bihar, Uttar Pradesh, Madhya Pradesh, Odisha and Rajasthan. Multidimensional poverty in urban areas during the same period also saw a decrease from 8.65% to 5.27%.

It is notable that the remarkable progress was achieved due to realisation of extremely low deprivation rates in various parameters especially for electricity, access to bank accounts and drinking water etc. which reflects government’s unwavering commitment to improving citizens’ lives. Last week, Prime Minister of India emphatically said, “India will make it to the top three economies in the third term (of his government) and this is Modi’s guarantee.” Given the pace of India’s post-Covid economic recovery, the assertion of the Indian Prime Minister is not misplaced.

It is not the Indian Prime Minister alone, but many global institutions believe so. The reason according to Goldman Sachs is that “India has made more progress in innovation and technology than some may realise and the country has demographics on its side.” It suggests India to work towards increasing labour participation and enhancing its productivity to take advantage of its demographic dividend. This is one of the priorities of the economic policies of Narendra Modi’s government as could be seen by National skill Development Programme and vocationalisation of education.

Goldman Sachs believes that in near future capital investment is going to be a significant driver of growth going forward. Driven by demographics, India’s savings rate is likely to increase with falling dependency ratio, raising incomes and deeper financial sector development, which is likely to make the pool of capital available for further investment. It also added, “given healthy balance sheets of private corporate and banks in India, we believe that the conditions are conducive for a private sector capex cycle.

The global institution also appreciates that there is a lot of infrastructure creation that is going on now, primarily led by the government’s focus on setting up infrastructure in terms of roads, railways, and so forth. The opportunity, it felt should be grabbed by the private sector to scale up on creating capacities in both manufacturing and services which has the potential of creating jobs and absorbing large labour force.

The investment prospect is improving in India because of present government’s commitment towards continuous economic reforms and improvement in India’s business environment. India’s Gross Savings Rate was 30.2% in March 2022 and it is likely to increase to 35% in the next two-three years. There have been interruptions in the upward movement of investment in India due to dislocations caused by the Covid-19 pandemic, but investment rate still hovered around 29-30% of the GDP.

India targets an investment rate of 40% of GDP over the medium term. If its capital market performance is any indicator, this goal could be realised. India jumped 79 positions from 142nd (2014) to 63rd in World Bank’s Ease of Doing Business Ranking 2020.

The Narendra Modi-led government reduced more than 39,000 compliances and decriminalised more than 3400 legal provisions. The improvement continues and India is fast adopting best international practices. Additionally Indian government adopted the Business Reforms Action Plan (BRAP) which was launched by the Department for promotion of Industry and Internal Trade in 2022 which oversaw 7,496 reforms implemented across States and UTs.

The impact of these changes and reforms is that India’s attractiveness as a global investment destination has improved. According to the 2023 edition of the World Investment Report, total FDI into India soared by 10 percent from USD 44.7 billion in 2021 to an impressive USD 49.3 billion in 2022. The milieu for entrepreneurship in India has been improving continuously under the leadership of Narendra Modi. The evidence to this is burgeoning number of start ups in India.

 Despite slowdown in start-up funding, India continues to be the third largest tech start-up ecosystem globally with over 1300 active tech start-ups added in the calendar year 2022. India today, has 68 new unicorns and it has third position in the world in rankings. India’s ranking in the global innovation index has improved to 42. Remarkably, India’s innovation outputs have remained higher than innovation inputs. The digitalization of Indian economy is increasing fast. India’s digital journey is one of exuberance.

The country had the world’s second largest internet population of over 1.2 billion users in 2023. Of these, 1.05 billion users accessed the internet via their mobile phones. The speed with which economic reforms and adoption of new technology is taking place in India, the growth of Indian economy would soon touch new highs as claimed by the Indian Prime Minister. This would also get a boost due to industrialized countries interest to create alternative supply chains.

The world is looking at India as a very strong claimant to be the hub of alternative supply chains for both tech and non-tech products because of several advantages it has including location, language, cheap labour and good governance. Japanese, American, South Korean and some European companies are very forthcoming in this regard. The Indian Elephant is poised to evolve as a global economic power and become a USD 10 trillion economy by 2030 and the biggest economy of the world in the next two decades.