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The Progression Of India’s Economy In The Face Of A Challenging Global Environment

Over the years, India has also emerged as a top investment destination, currently unscathed by the recessionary environment

The Progression Of India’s Economy In The Face Of A Challenging Global Environment

Outlook Start-Up Desk

POSTED ON August 22, 2023 7:43 PM

With an average annual growth rate of 5.5 per cent in the past ten years, India's economy is already the fastest-growing in the world. Global offshore, digitisation, and the energy revolution are the three megatrends that are currently paving the way for the nation of more than 1 billion people to see unheard-of economic growth. 

Even when all economies were recovering from the effects of the pandemic at the start of 2022 with Russia’s invasion of Ukraine, the Indian economy was somewhat insulated from the global crisis because its economic fundamentals were stronger than those of other countries. 

The service sector accounts for more than 50 per cent of the economy, providing further insulation, and exports for less than one-fifth. With a drop in exports due to the decline in developed economies, India is expected to record significant GDP growth in FY23. 

India As A Major Global Entity

India has gone through a major transformation journey with drastic technological innovations and adaptation to new business trends. Companies globally have been offshoring services like technology development, customer management services, and business processes to India since the internet boom in India. 

The country has emerged as a centre for global businesses because of its skilled workforce, cost-effective operations, and supportive government. Thus offering a lucrative market for opportunities. 

The country will be focusing on the following six areas: trade agreements, investments, India’s strengths as a supply-chain alternative, ease of doing business, innovation, and sustainability. The government has launched several initiatives, such as the National Infrastructure Pipeline, GatiShakti and the National Monetisation Plan, to boost infrastructure.

With the Indian economy poised to have strong GDP growth, we continue to see hiring growing at a steady pace through 2023, and the job market is also seeing a consistent uptick in hiring activity across key sectors and cities. Nearly 55.6 million Indians benefited from the Skill India Mission and other skill development programs from 2015 to October 2022. 

The India Advantage:

  • India’s diverse ecosystem - India has a diverse set of natural resources and is home to a diverse ecosystem and climatic conditions. India also boasts the world’s second-largest production of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, and sugar and employs about half of the country’s population. It is forecast to be worth $24 billion by 2025.  
  • India: A self-sustaining economy - The ‘Make in India’ program launched by PM Narendra Mod, emphasise resuscitating the economy, making progress domestically, generating employment independently, providing support for start-ups, and bringing strength to supply chains. The government launched a special economic package worth Rs 20 lakh crore under the ‘Aatmanirbhar Bharat Abhiyan’ to promote the ecosystem for a self-sustaining economy.
  • The foundation of new-age Digital India - The launch of the ‘Digital India’ program led to significant improvements in technology infrastructure. India’s digitization is built on the Aadhaar number, a biometric identity programme under which over 1 billion people are registered. UPI is India’s largest real-time payments market. India’s official digital currency is in the works and is expected to be launched by 2023.
  • India is at the center of world politics - India has shaped its diplomatic relations and has positioned itself strongly on the world map. It helped more than 150 countries amid the pandemic, injecting confidence for the world to fight the worst pandemic of the century. 

Following the pandemic, India’s voice has been heard on all global forums, ranging from the G-20 to BRICS, from ASEAN to the Eastern Economic Forum, and from the Quadrilateral Security Dialogue (Quad) to the SCO Summit and COP-26. India proved it could take global responsibility after it was assigned the UNSC presidency in August 2021. 

Since the advent of The National Democratic Alliance in 2013, India’s political climate has been stable, further promoting India's initiatives to promote investment. It is strengthening its position by reviewing existing free trade agreements with ASEAN (Southeast Asia), Japan, and Korea and forming trade alliances with strong nations including the UAE, the EU, the UK, Israel, Australia, Canada, Russia, Oman and the Gulf Cooperation Council. 

Global Recession 2023: Impact On India

India’s economy is not immune to the US and global recessions. The US’s share of India’s merchandise exports increased to 18.1 per cent in FY22 from 10.1 per cent in FY21. 

This increase has heightened India’s vulnerability to a recession in the US market. The US accounted for up to 54.8 per cent of India’s software exports in FY21; therefore, such exports, margins, and the service sector could be vulnerable to a US recession. 

A rising interest rate environment has started impacting the Indian economy, and the RBI has started moving in tandem with about 90 central banks, increasing interest rates. It announced a surprise 40-bps interest rate hike in May 2022, and another 50-bps hike in June 2022, taking the repo rate to 4.90 per cent and reducing the liquidity surplus from $52 billion to $40 billion. 

CPI inflation was at 6.07 per cent in February, breaching the RBI’s comfort level, and WPI was stuck at a high of 13.11 per cent. 

With rising income and savings, investment opportunities, and a younger population, India has ensured rapid growth for decades to come. According to the World GDP Ranking for 2023, India has risen to rank #5 in 2023 from #63 in 2022. 

Over the years, India has also emerged as a top investment destination, currently unscathed by the recessionary environment. Focusing on green hydrogen, instead of grey hydrogen has insulated India from the crisis surrounding carbon border tax. 

The main sectors that will support the growth of the Indian economy are IT, telecom, ITES, pharmaceuticals, banking, insurance, textiles and apparel, steel, machine tools, and gems and jewelry. The coming decades are likely to witness tectonic shifts in the world economic structure, and India’s share in output is projected to jump from 5 per cent as of today to 20.8 per cent by 2040. 

India has now started a long-term cycle of virtue in which rising incomes result in rising spending. This, in turn, increases business possibilities and employment, further boosting GDP and income growth. 

-    Ankur Bharadwaj - Director, Investment Banking and Nitant Arora, Delivery Lead IB at Acuity Knowledge Partners 

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