Why the New Year is likely to be truly “Happy” for the Indian Economy

The world around us is in flux. The ongoing Ukraine war has posed some existential questions to humanity and clouds of yet another Covid wave is hovering over us.

Our economy remains an island of hope amidst this uncertainty. The Indian tiger continues to march forward to the New Year taming the existing economic challenges. The government coffers are swelling and the tide of inflation is receding. The demand for domestic credit is surging at the highest rate in recent years.

The Indian economy is expected to grow at a rate ranging from 4.8 per cent to 5.9 per cent in the coming year. No mean feat considering the current headwinds afflicting the global economy. Compare it to the estimated global growth rate of 1.8 per cent to see the point. The World Bank has revised its growth forecast for the Indian economy from 6.5 per cent to 6.9 per cent even as most agencies have downgraded similar predictions for most of the major economies. This is just the first indication of the changing global outlook for India. Most analysts were so far pegging India’s growth rate below 6 per cent in 2023. Even the World Bank has thrice decreased its estimation of the growth rate for the Indian economy in its World Economic Outlook Report.

The Indian economy has held its ground against many recent shocks. Recently released data for the second quarter of the current fiscal year has exceeded expectations. Many other indicators are looking positive. Domestic demand has improved almost to pre-pandemic levels. The manufacturing and service sectors remain stable. The Goods and Services Tax (GST) collection is breaching set targets. Banks are showing a resurgence and corporate debt is at its lowest in the past nine years. Foreign exchange reserves are at a healthy level and external debt remains under control. Reforms are picking up pace and their trajectory remains buoyed by prospects of continuing political stability post-2024 general elections.

India is all set to join the elite club of economies adding $ 400 billion annually to their worth. The figure is likely to exceed $ 500 billion in 2028. According to the American multinational investment management and financial services company Morgan and Stanley, India will be the world’s third-largest economy by 2027 leaving behind Germany and Japan. The State Bank of India predicts India to surpass Germany to become the fourth-largest global economy in 2027 and overtake Japan to become the third-largest economy by 2029. We are presently an economy of $ 3 trillion and need to grow constantly at a rate of 7- 7.5 per cent to reach the target of $ 20 trillion by 2047.

This, however, doesn’t mean we can afford to lose guard. India cannot be immune to the prospects of depression in other major economies, including the US. Inflation has lately become a concern in India owing to rising food and crude oil prices as an effect of the Ukraine War. It has hit sectors such as fuel, transportation and communication hard. The inflation rate has consistently remained above 6 per cent for 10 months before coming down to 5.88 per cent in November. It was recorded at its highest level of 7.79 per cent in April 2022.

We are welcoming the New Year on the right note of the receding inflation rate. SBI’s latest report indicates an easing of inflation in India as compared to many developed economies. The report cites a net retail inflation rise of just 12 rupees in India during September 2021- 2022. In contrast, the US witnessed a rise of $ 22.5, the UK 11.4 pounds and Germany 11 Euros during the same period. India’s per capita income has risen by 57 per cent in the period between 2014- 2022, a substantially high growth when you look at the countries like the UK (1 per cent), France (5 per cent), Italy (6 per cent), Brazil (27 per cent) and Japan (11 per cent).

Employment generation is likely to be India’s biggest challenge in 2023 although the unemployment rate also remains relatively low in India as compared to global levels. According to Centre for Monitoring Indian Economy (CMIE) data, rural unemployment stood at 8.5 per cent, whereas the urban unemployment rate had crossed 10 figures in December. Many positive developments in the recent past can help us meet the twin challenges of inflation and unemployment. A recent example is the signing of a free trade pact with Australia. The country will soon start trading with Russia in Indian Rupee. The government has taken many steps to improve banking and logistics-related bottlenecks. The production link incentive scheme has been extended to the pharma-API sector. These initiatives will boost India’s imports and exports making it easier for us to meet the impact of the fluctuating dollar. An increased trade always translates to employment generation.

The reader must remember the beginning of the current year when foreign investors were fleeing the Indian market. We have managed to reverse the situation by the end of the year. The Indian economy attracted $ 42 billion worth of foreign investment during the first nine months of the year 2022. Our share market has grown by 4.5 per cent in the current year. It is likely to grow into the world’s biggest share market by 2030. The onset of the economic slowdown in the west brings new opportunities to our export sector. We should explore new markets in Latin America, Africa and Asian countries. India should also capitalise on the adverse effects of the Covid-19 break out in China. The coming year surely comes with new hopes for our economy.