India’s growth story to continue unabated. With seven per cent growth rate, India is set to become a $5 trillion economy in the next three years and can aspire for $7 trillion by 2030, says the report 'Indian Economy—A Review', presented by the Finance Ministry.
With Lok Sabha polls looming large on the horizon, Finance Minister Nirmala Sitharaman this year didn’t come out with Economic Survey, the state of India’s Economy report, which is a precursor to Union Budget. The Centre instead has come out with a report on India's journey from the past 10 years which has glimpses of projected trajectory the economy is going to take in the coming years. The report has been prepared by the Chief Economic Advisor, V Anantha Nageswaran.
The report clearly mentions that it is not an Economic Survey of India, which it says will be presented before the full Budget after the general elections. The report says that 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.
Numerous public welfare schemes launched by the centre have ensured greater inclusive development, much lower unemployment rate, and moderate inflation. This marks the journey from fragility to stability and strength during the last 10 years.
GROWTH STORY INTACT
The report stressed “not all growth is equal” and the marginal utility of 7% growth when the world is struggling to grow 2% is “much higher” than 8-9% growth achieved with the global economy rising 4%.
“One unit of growth in the latter circumstance is qualitatively superior to the former,” the CEA wrote in a report titled ‘The Indian Economy: A Review’ released by the Department of Economic Affairs, which also offered a “brief sketch of the outlook for the economy in the coming years”.
The prognosis of 7% growth in the coming year, if actualised, would mean 7% or higher growth for four years in a row, the CEA terming it “an impressive achievement, testifying to the resilience and potential of the Indian economy, which augurs well for the future. Mr. Nageswaran emphasised that this review was not ‘the Economic Survey of India which will come before the full Budget and after the general elections’.
TWO PHASES OF ECONOMY
The review split India’s growth story into two phases—1950 to 2014 and ‘2014-2024: Decade of transformative growth’—and noted that despite some positive developments, the state of the Indian economy was far from encouraging when Prime Minister Narendra Modi ‘assumed power in his first term in office’.
The economy had clocked lower than 5% growth of GDP at factor cost at constant prices for two consecutive years, 2012-13 and 2013-14, food inflation was high, and structural constraints such as difficulties in quick decisions on projects, ill-targeted subsidies cramping fiscal space for public investment, and a large informal sector, were denting growth, the Finance Ministry said.
“Since then, the 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,” the ministry said, noting that the economy is generating jobs and an impressive post-pandemic recovery has seen urban unemployment rate decline to 6.6%. The CEA termed this a journey “from fragility to stability and strength.”
PUBLIC FINANCES STRONG
While India's public finances have often been cited as a weakness and inflation can be volatile, the external position is widely regarded as a key strength. In terms of external debt, while it has been on the rise in absolute terms, it remains easily serviceable.
"India's external debt...is considered comfortable and has been prudently managed over time," the report said, adding that a large portion of the short-term debt is in the form of short-term trade credits.
The report claimed that domestic consumption has been robust and driven the economy to a 7%-plus growth rate in the last three years. “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,” it said.
HOUSING SECTOR SURGING
The housing sector is crucial to the growth of the economy given its numerous backward and forward linkages - if the sector does well, so do others such as cement and steel. And according to the finance ministry, housing prices began to recover after the coronavirus pandemic, with the average annual growth in real estate prices increasing from 2.3 percent in 2021-22 to 4.3 percent in the first half of the current financial year.
A reduction in housing inventory, as shown in the above chart, "despite an appreciation in real-estate prices and higher interest rates attests to the strength of the recovery of incomes and optimism about the future", the ministry noted.
Key to India's future growth is going to be the inclusion of more and more women in the labour force. According to the World Bank, India's pursuit of sustained 8 percent growth to become a developed country by 2047 will not be possible at the current low level of female participation in the workforce.