“India’s GDP growth in Q1FY23 was 13.5%. At this rate, India is likely to be the fastest growing economy in the current fiscal,” the report said.
In fact, SBI estimates that India will be the third largest economy by 2029. “The path taken by India since 2014 reveals India is likely to get the tag of 3rd largest economy in 2029, a movement of 7 places upwards since 2014 when India was ranked 10th. India should surpass Germany in 2027 and most likely Japan by 2029 at the current rate of growth. This is a remarkable achievement by any standards,” said Dr Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.
However, even as estimates of India’s GDP growth rate for FY23 currently range from 6.7% to 7.7%, SBI economists believe that it is immaterial. “In a world that is ravaged by uncertainties, we believe 6% -6.5% growth is the new normal,” they noted.
Other brokerages cite similar views
According to a report by HDFC Mutual Fund, India has been consistently tagged as the fastest-growing major economy in the past few years by multilateral agencies such as the International Monetary Fund (IMF).
A report by Morgan Stanley last month said that India is likely to be the fastest-growing Asian economy in 2022-23. The brokerage expects India’s gross domestic product (GDP) growth to average 7 per cent during this period – the strongest among the largest economies – and contributing 28 per cent and 22 per cent to Asian and global growth, respectively. The Indian economy, they said, is set for its best run in over a decade, as pent-up demand is being unleashed.
“We have been constructive on India’s outlook, both from a cyclical and structural perspective, for some time. The recent strong run of data increases our confidence that India is well positioned to deliver domestic demand alpha, which will be particularly important as developed market (DM) growth weakness percolates into Asia’s external demand,” said Chetan Ahya, chief Asia economist at Morgan Stanley in a note.
Lower debt compared to rest of the world
Compared to the rest of the world, India has much lower debt in the economy, noted HDFC MF. “India is among the few economies to have debt lower than the start of the global financial crisis,” it said.
Demographic dividend, young population
India’s population size is expected to exceed China by 2023, with each counting more than 1.4 billion residents this year, according to a United Nations report. In 2022, India’s population will only be slightly lower (at 1.412 billion) than China’s (1.426 billion), according to the report.
And in 2050, the country is projected to have a population of 1.668 billion – way ahead of China’s 1.317 billion.
While the world is expected to see an ‘ageing’ trend, India will continue to have a higher share of working age population.
According to the SBI report, Chinese demographers are now predicting that negative population growth in China will be the dominant trend in the coming years for a long time and improving the overall quality of the population and changing economic development plans are vital to address the problem.
With ageing, the size of the family will gradually shrink. The housing demand will eventually decline in the long run in China as seen in Japan, the report highlighted.
“In the future outlook of the construction sector in China over the long run structural factors such as demographic ageing and rebalancing of the economy will eventually remove a substantial portion of demand,” it said.
Access to critical infrastructure improved
India has hugely improved access to basics such as:
India is also adding green energy capacities
As part of the nationally determined contributions to the United Nations Framework Convention on Climate Change, India has set a target of 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
While more than 60% of the population is now connected to the internet
India is leading the world in terms of digital payments. Nearly 60% of all digital payments are currently UPI-based. The widespread use of smartphones, affordable internet connectivity, and India’s biometric identity card all contributed to the explosive growth of online payments via mobile phones.
PwC projects that between 2020 and 2025, there will be 1.9 billion cashless transactions, and that figure could potentially triple by 2030.
FPI flows have turned positive
Large outflows were witnessed from foreign portfolio investors from October 2021 onwards as economies across the world began hiking the interest rates, making it more expensive for global investors to invest in emerging market economies. They abated in July 2022, and have turned positive in August 2022. FPI flows in August 2022 stood at approximately Rs 60,000 crore.
Indian equities were among the biggest recipients of overseas flows in August, shows Bloomberg data.