The advent of Artificial Intelligence poses the profound and troubling questions for growth in services trade and employment since technology might remove the advantage of cost competitiveness that countries exporting digital services enjoy
FinTech BizNews Service
Mumbai, January 29, 2024: It now appears very likely that the Indian economy will achieve a growth rate at or above 7% for FY24, and some predict it will achieve another year of 7% real growth in FY25 as well. If the prognosis for FY25 turns out to be right, that will mark the fourth year post-pandemic that the Indian economy will have grown at or over 7 %. That would be an impressive achievement, testifying to the resilience and potential of the Indian economy. It augurs well for the future, says ‘Indian Economy – A Review’, released today just ahead of the interim union budget 2024 by the Ministry of Finance.
V. Anantha Nageswaran, Chief Economic Adviser, GoI, has, in the preface to the review, further
pointed out that some economists argue, with considerable merit, that not all growth is equal. They are right. It is one thing for India to grow at 8-9 % when the world economy is growing at 4 %, but it is another thing to grow at or above 7 % when the world economy is struggling to grow at 2 %. One unit of growth in the latter circumstance is qualitatively superior to the former. The marginal utility of growth in the second scenario is much higher.
Nageswaran elaborates that at least three trends will be with us in the coming years. The era of hyper-globalisation in global manufacturing is over. Exporting one’s way to growth will not be easy. This reinforces the need to lower logistics costs and invest in product quality to hold on to and expand market share in areas where India has an advantage. Closely related to this challenge is the advent of Artificial Intelligence with the profound and troubling questions it poses for growth in services trade and employment since technology might remove the advantage of cost competitiveness that countries exporting digital services enjoy. Third and arguably the most important is the energy transition challenge. It is a reality that, in the short run, there is a trade-off between economic growth and energy transition. In a growth-challenged post-Covid global economy, countries can ill afford to sacrifice the former for the latter. India is walking the fine line between the two more skilfully than other nations, with installed non-fossil fuel-based power generation capacity running ahead of targets.
Rise Of 3.3X In Public Sector Capital Investment
The Union government has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from Rs5.6 lakh crore in FY15 to Rs18.6 lakh crore in FY24, as per budget estimates. That is a rise of 3.3X. Whether the total length of highways, freight corridors, number of airports, metro rail networks or the trans-sea link, the ramp-up of physical and digital infrastructure in the last ten years is real, tangible and transformative. The financial sector is healthy. Its balance sheet is stronger. It is willing to lend and is lending. Non-food credit growth, excluding personal loans, is growing at double-digit rates.
Deposits, Household Financial Assets
The pursuit of inclusive development finds Indian households in good financial health. Fifty one crore bank accounts under Jan Dhan Yojana now have total deposits of over Rs2.1 lakh crore. Over 55 % of them are women. In Dec. 2019, household financial assets were 86.2 % of GDP; liabilities were 33.4 % of GDP. In March 2023, these numbers were 103.1 % and 37.6 %, respectively. So, Net Financial Assets of households were 52.8 % of GDP in Dec. 2019, and by March 2023, it had improved to 65.5 % of GDP. The economy has created jobs; the unemployment rate has declined considerably from the peaks during Covid times.
As the government resolves longstanding problems such as deficient infrastructure and financial exclusion, aspirations rise, and expectations shift higher. That is actually a tribute to the policies and performance of the government.
2014-2024: Decade Of Transformative Growth
The ‘Indian Economy – A Review’, states that Indian economy has undergone many structural reforms that have strengthened its macroeconomic fundamentals. These reforms have led to India emerging as the fastest-growing economy among G20 economies. In 2023-24, as per current estimates, it is estimated to have grown 7.3 % on top of the 9.1 % (FY22) and 7.2 % (FY23) in the previous two years, and the economy is generating jobs. This impressive post-pandemic recovery has seen the urban unemployment rate decline to 6.6 %. The government has extended the Pradhan Mantri Gharib Kalyan Anna Yojana for 80 crore citizens for five more years until December 2028.
Key highlights of The Indian Economy: A Review
1. FY24 marks the third successive year of 7 % plus strong growth of the Indian economy even as the global economy struggles to grow at more than 3 %.
2. Exporting one's way to growth is no longer easy amid onshoring and friend-shoring of production, increasing vulnerabilities of global supply chains and the legacy of twin-global shocks.
3. India’s unwavering commitment to ensuring steady economic growth is generating resources for investment needed for climate change adaptation, building resilience, and mitigating emissions.
4. The public sector capital investment has surged in the last 10 years, the financial sector is healthy, and non-food credit growth is strong, enabling the Indian economy grow at a brisk rate.
5. Greater inclusive development, much lower unemployment rate, and moderate inflation, mark the journey from fragility to stability and strength during the last 10 years.
6. The government’s COVID management, mature stimulus measures and the monumentally successful vaccination launched the return of the economy to a high-growth path
7. The structural reforms implemented since 2014 have strengthened the macroeconomic fundamentals of the economy.
8. The reforms undertaken to strengthen the financial sector have helped clean up the balance sheets of banks and corporates and emboldened banks to resume lending to all sectors of the economy.
9. The unification of the domestic markets brought in by the adoption of the GST has incentivised production on a larger scale, enhanced economic efficiency while reducing logistics costs.
10. Investment incentives and initiatives to ease business compliances and remove policy uncertainties have created an ecosystem for start-ups to nurture.
11. People of India are not only the beneficiaries of government programmes during the last 9 years but also the drivers of its economic success.
12. India embarks on her ‘Amrit Kaal’ with the confidence that challenges to growth and inclusive development are stepping stones and not obstacles.
13. The all-inclusive welfare approach of the government is expected to contribute to the enlargement of the consumption base through the expansion of the middle class.
14. Despite challenges posed by the global health crisis and variability in climate conditions, the agriculture sector has demonstrated remarkable tenacity and resilience.
15. India’s robust Digital Public Infrastructure has transformed the authentication ecosystem, reducing the cost of conducting e-KYC from Rs1000 to Rs5. It has also enabled online, paperless, and cashless digital access to various public and private services.
16. The proliferation of internet connectivity and smartphones in India, coupled with rapid urbanisation and the rising influence of the middle class, have propelled the e-commerce market, with ONDC opening global markets for even the smallest business.
17. India is the third-largest fintech economy in the world after the USA and the UK.
18. The firms undergoing the IBC resolution process have witnessed a significant improvement in their performance in the post-resolution period. 19. India became the world’s fourth largest stock market in the world by market capitalisation, overtaking Hong Kong thanks to significant interest from domestic and global investors in the Indian stock market and sustained IPO activity has placed the Indian market fourth in the world by market capitalisation.
20. Over the last decade, the Indian concept of welfare has been significantly transformed into a more long-term-oriented, efficient, and empowering avatar.
21. The employment situation in India has experienced a positive transformation, with notable achievements in formalisation, skill development, entrepreneurship, and inclusive growth.
22. Despite low historical contribution to global carbon stock, India has adopted a comprehensive approach that addresses adaptation, resilience building and mitigation action as part of its contribution to the global response to climate change.
23. MSMEs are becoming increasingly vibrant and dynamic, with the supportive measures implemented by the government.
24. Reservations for women in panchayats have led to greater investment in public goods closely linked to women’s concerns, such as drinking water and public roads.
25. The PM Jan Dhan Yojana has increased the proportion of women having a bank account that they themselves use, from 53 % in 2015-16 to 78.6 % in 2019-21.
26. Female LFPR rose from 23.3 % in 2017-18 to 37 % in 2022-23, reflecting a tectonic shift towards women-led development in India. 27. Female participation has been encouraging in the wave of human capital formation through Skill India Mission and Start-up and Stand-Up India.
28. Female Gross Enrolment Ratio in senior secondary education more than doubled from 24.5 % in FY05 to 58.2 % in FY22, and the female GER in higher education quadrupled from 6.7 % in FY01 to 27.9 % in FY21.
Third-Largest Economy In Next 3 Years
In the next three years, India is expected to become the third-largest economy in the world, with a GDP of USD 5 trillion (Tn). The government has, however, set a higher goal of becoming a ‘developed country’ by 2047. With the journey of reforms continuing, this goal is achievable. Only the elevated risk of geopolitical conflicts is an area of concern. Priority areas for future reforms include skilling, learning outcomes, health, energy security, reduction in compliance burden for MSMEs, and gender balancing in the labour force. Furthermore, under a reasonable set of assumptions with respect to the inflation differentials and the exchange rate, India can aspire to become a USD 7 trillion (Tn) economy in the next six to seven years (by 2030). This will be a significant milestone in the journey to delivering a quality of life and standard of living that match and exceed the aspirations of the Indian people.
