As per recent reports, the International Monetary Fund (IMF) has forecasted a significant increase in India’s contribution to global economic growth, with an expected rise from 16% to 18% by 2028. This projection is a consequence of the speedy economic growth being experienced in the country.
Key Factors Propelling India’s Economic Growth
Several factors have been identified as contributing to this growth projection. First is the relatively even monsoon rainfall experienced across Indian states. Despite recording a deficit, the distribution was generally normal or above normal in 29 out of 36 states/Union Territories, thereby ensuring sufficient contribution to agriculture and allied sectors. Capital expenditure is another aspect that has contributed significantly to the growth, as evidenced by the current capital expenditure of 25% at the state level and 37% at the centre.
The rapid rate of new company registrations also suggests a booming business sector. With approximately 93,000 new companies registered during the first half of 2023-24, this reflects an increase of about 58% from 5 years ago. Other crucial factors include the robust credit growth recorded by scheduled commercial banks and the gradual formalisation of India’s economy.
Hindrances to India’s Projected Growth
Despite these positive indicators, several challenges could hinder India’s projected growth. One of the major obstacles is the stagnant demand for goods and services, mainly due to low income growth, high inflation, unemployment, and the ongoing effect of the Covid-19 pandemic. These issues have impacted consumption and investment levels and subsequently resulted in a reduction in tax revenue.
A persistent unemployment problem, amplified by the pandemic, also poses a clear threat to achieving the projected growth. Infrastructure inadequacies contribute significantly as well, with India estimated to have a $1.5 trillion infrastructure gap as per the World Bank. Furthermore, balance of payment issues, geopolitical tensions, and trade imbalances with significant partners all pose considerable challenges to India’s economic growth.
Strategies for Growth: Encouraging Private Investment and Increasing Competitiveness
In order to meet and overcome these challenges, various measures need to be taken. Encouraging private investment is paramount, as it paves the way for increased productivity, innovation, and competitiveness. The government has made efforts to enhance this area by reducing corporate tax, providing credit guarantees, and attracting foreign direct investment. However, more reforms in land, labour and logistics are necessary.
India also needs to bolster its competitiveness on a global scale. This can be achieved by diversifying exports, improving infrastructure, promoting innovation and digitalization, and integrating more efficiently with global value chains. Schemes like Production Linked Incentive (PLI), Phased Manufacturing Programme (PMP), and Make in India have been launched to support these goals but they need to be further enriched by trade liberalization and regulatory simplification.
Promoting Green Growth and Maintaining Economic Stability
In addition to these strategies, there is a need to promote green growth in alignment with India’s climate change goals. Government initiatives like green bonds for green infrastructure projects have been introduced, but more needs to be done regarding environmental challenges like air pollution, water scarcity, waste management, and loss of biodiversity.
Maintaining stability within the economy is also pivotal. A stable and low inflation rate can foster confidence and investment, while sufficient liquidity and credit availability for productive sectors, especially small and medium enterprises, are important. Developing financial markets and institutions to facilitate savings and investment could be another crucial step towards achieving projected growth.
Despite several challenges that might undermine India’s projected growth, there exists promising potential for greater economic expansion, given the right strategies and initiatives. While it’s crucial to remain realistic about the challenges, focusing on key areas of development like private investment, competitiveness, sustainable growth, and economic stability can help India meet its growth goals.