The International Monetary Fund (IMF) has projected that India is set to contribute 15% of the global growth in 2023, remaining a relative “bright spot” in the world economy. But what are the key factors promoting India’s economic rise and the challenges it faces in sustaining this growth? Let’s dissect these elements.
Main Factors Driving India’s Economic Rise
Growth Prospects: Despite a projected global economic slowdown in 2023, India still shines in terms of its growth rate, which is slated to be at 6.1% for the fiscal year 2023/24—significantly above the global average. Consequently, India will account for about 15% of global growth in 2023.
Digitalisation: The IMF credits India’s efforts to harness digitalisation as a means to mitigate the effects of the pandemic and create job opportunities, stating that India’s fiscal policy has been responsive to these changing economic conditions.
Investment in Green Economy: India has shown fiscal responsibility by investing in the green economy, including potential shifts towards cleaner, renewable energy sources.
Capital Spending: Capital expenditure has risen in India, amounting to 3.3% of the gross domestic product (GDP), marking this as the most significant such leap since an increase of over 37% between 2020-21 and 2021-22.
Demographic Dividend: With a young population and 15 million people joining the labour force annually, India’s potent mix of a robust investment environment and job generation present immense opportunities for economic growth. In addition, women could potentially be key drivers of India’s economic advancement.
Roadblocks to Sustainable Economic Growth
Geopolitical Issues: Emerging markets such as India face significant geopolitical risks, such as the Russia-Ukraine conflict, which has resulted in global supply chain constraints and food shortages.
Jobless Growth: Despite robust GDP growth, job growth lags behind. The Centre for Monitoring Indian Economy notes that only 40% of the capable labour force is working or seeking employment, with women having a lower participation rate.
Wealth Disparity: According to the ‘World Inequality Report 2022’, a staggering 57% of India’s national income is held by the top 10% of its population, reinforcing the inequality gap and underlining the need for more equal opportunities.
Trade Deficit: With export trends on the downturn, India’s trade deficit reached a record $31 billion in July 2022 due to recessionary trends in developed economies and elevated commodity prices.
Promoting Sustainable Economic Growth
Establishing Economic Development Goals: India must focus on tackling present challenges and preparing for future ones. This requires robust, forward-thinking policy choices, a transparent articulation of economic development goals, and an emphasis on technological advancements.
Boosting Manufacturing: Strengthening the Make in India initiative with a focus on zero defect, zero effect can help augment small-scale manufacturing. This requires banking sector reforms.
Unlocking Women’s Potential: Prioritising the closing of the gender gap in education and promoting financial and digital inclusion for women are vital for economic growth.
Strengthening Special Economic Zones: Increased special economic zones would attract foreign investment, increase exports, and support regional development. The Baba Kalyani Committee on SEZs suggests promoting MSME investments in SEZs, linking them to MSME schemes, and allowing sector-specific SEZs.
India’s contribution to global economic growth cannot be overstated. By addressing the challenges and leveraging opportunities as they arise, the country can sustain and potentially increase its current growth trajectory.
