Pay heed to concerns over growth shocks

Of late, countrymen are treated to a number of good tidings on the economy front. It is said, India has potential to become a $5trillion economy and the third largest economy by 2027. It is poised to account for a sixth of world output growth if it focuses on Asia and Pacific which is likely to share two-thirds of global growth this year itself, says RBI Deputy Governor Michael D PatraMichael D Patra. Organisation for Economic Cooperation and Development (OECD) raised India’s GDP projection for FY 2024 to 6.3% against 6% previously. India Ratings and Research revised its forecast to 6.2% from 5.9%. NITI Aayog said economy will grow at around 6.5%. This is against signs of deceleration in global economy, which is expected to grow at a rate of 3 per cent in 2023, before slowing down to 2.7 per cent in 2024, according to OECD.

There is a strong momentum in domestic consumption aided by favourable agricultural outcomes, services, digital economy and infrastructure. Helping in no small measures are government thrust on capital expenditure, lessening of corporate debt and prospects of a new round of corporate capex cycle.

Moody’s Investors Service says rising per capita income and a growing working-age population may keep driving consumption in India.

However, Asian Development Bank lowered India’s GDP projection by one percentage point for fiscal 2022-2023 to 6.3 per cent from 6.4 per cent. India’s economy will grow about 6% this fiscal year, on the back of increases in private investment, according to a Reuters Poll of Economists. Analysts draw attention to growth shocks in form of inflationary pressures, a falling rupee (it fell 15 paise to 83.10 in August against $, its lowest since October 20, 2022) overprojections of tax revenue, high crude prices etc. RBI, however, paused key lending rate at 6.5 per cent, as current trends project retail inflation to slide below the tolerance level of 6 per cent to 5.2 per cent. But, the food inflation, which garners nearly 50% of CPI basket, should be a concern. Agriculture forms about 15% of GDP but employs over 40% of workforce. Modi government vowed to double farmers’ incomes by 2022. The least it can do is raise MSP, help them during vagaries of nature and improve marketing of their produce.

India saw a total FDI inflow of $70.97 billion in FY 2023, against its potential to attract $475 billion in five years, as per a CII-EY Report. Making auspicious sounds, various studies and experts are stressing it is high time to push through reforms to remove bottlenecks domestically and address trade irritants on bilateral and multilateral fronts. The potential is huge but, India has to contend with East Asia in attracting big companies evolving their China+1 strategy.

Domestic corporate bond market is the primary resort to funding corporate growth. Growing by nearly four times to around Rs 32.5 lakh crore in the last decade, it can draw Rs 10 lakh crore more by 2025, economists indicate, as bond market share is still less than 20 per cent of GDP.

Though the country is still ahead of major economies, the country needs to push for higher growth and investment, which is key to meet demands of burgeoning numbers of the jobless. The unemployment rate rose to 8.11% in April, as per a study of CMIE, which must sound alarm in the corridors of power.