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India’s Quest for High and Stable Growth
In honor of our new “Look Forward” report on India, this week’s Daily Updates will cover different aspects of the Indian economy.
India came out of the pandemic with GDP growth of 7.2% in the fiscal year ended March 2023. Growth is nothing new to the Indian economy, but consistent and stable growth has remained an elusive goal. S&P Global economists believe that such growth is possible, predicting an annual growth rate of 6.7% between fiscal years 2024 and 2031, catapulting GDP to $6.7 trillion from the current level of $3.4 trillion. The question is: Given the employment needs of the fast-growing and relatively youthful Indian population, will 6.7% be enough?
V. Anantha Nageswaran, chief economic adviser to the government of India, believes that growth will need to be higher. “The Indian economy, in real terms, needs to grow annually at 7% to 7.5% until 2030,” Nageswaran said.
Growth in India will require a balance of manufacturing and service sector opportunities. The service sector has long been an area of strength for India, especially in information technology and IT-enabled services, along with domestic sectors such as retail, food services, trading, finance and healthcare. Other Asian countries that have experienced rapid growth, such as China, have done so with manufacturing jobs. Whether India can generate similar employment and productivity growth from services will be crucial.
“The composition of services should change in favor of high-value-added services, as this will improve earnings by attracting foreign demand,” Nageswaran said in a recent interview with S&P Global. “Hospitality is one area where high-value-added services need to be developed. Another is healthcare and elderly care, including traditional and modern medicines.”
S&P Global believes that the ingredients for macroeconomic success in India are increased labor force participation — particularly for women — more private investment in manufacturing and growth in foreign direct investment. Manufacturing is a particular area of concern for India. The sector has historically underperformed due to stringent labor laws, subpar logistics and poor infrastructure. The national and state governments in India have focused on addressing these problems through infrastructure investment and strategic reductions in often-onerous regulations.
“Achieving rapid growth in high-end manufacturing and high-value-added services requires an overarching and supportive ecosystem,” said Nageswaran. “This means there is a sustained pace of expansion in digital infrastructure, along with a significant upscaling of research and development in both the public and the private sector.”
Today is Monday, August 7, 2023, and here is today’s essential intelligence.
Written by Nathan Hunt.
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