Reasons for Moneycontrol's optimism about India

 Reasons for Moneycontrol's optimism about India

Spirits are high and there is an air of optimism. There is a bounce in India's step and a newfound assurance.

The slowdown in international trade has hurt the East Asian countries that rely heavily on exports. Inflation has soared in developed countries. However, India has reclaimed the title of "fastest-growing major economy" in the world.

The Covid pandemic, lockdowns, the Ukraine war, geopolitical stresses and strains, skyrocketing commodity prices, a global supply shortage, high inflation, monetary tightening by economies around the world, a slowdown in trade, and financial outflows have all been faced by the Indian economy in the last three years. Despite these crises, the Indian economy has not only weathered them but has come out stronger. This is a crucial justification for being positive about India; if we can survive this ordeal and return to routine, shouldn't we perform even better now?

The burden has caused several economies, including those in our neighborhood, to falter. The once-enviable expansion of China is now faltering. The slowdown in international trade has hurt the East Asian countries that rely heavily on exports. Inflation has soared in developed countries. However, India has reclaimed the title of "fastest-growing major economy" in the world. And unlike many other economies, this has been accomplished with relatively low levels of business and consumer debt, as well as quite moderate levels of government debt.

It's probably going to get even better. Banks are now able to lend since they have eliminated their problematic loans and have strong balance sheets. Companies can now borrow money for capital investments and expansion since they have also deleveraged and have reasonable debt-to-equity ratios. The quarter from January to March 2023 saw the highest level of gross fixed capital formation as a percentage of GDP in almost a decade. There are all the ingredients for an investment boom, which would give the economy another engine.

But Moneycontrol is optimistic about India for more reasons than just a cyclical comeback. The development theory pioneer and economist Paul Rosenstein-Rodan once compared the process of launching a nation into self-sustaining growth to that of taking off in an airplane. Before the craft may take to the air, it must pass a critical ground speed.

The Indian economy is prepared to blast off after reaching that crucial speed. India now ranks third globally in the market for automobiles, fourth globally in solar power generation, second globally in the production of mobile phones, second globally in the production of steel, third globally in the production of pharmaceuticals by volume, and first globally in the export of ICT services. The list might continue forever. Venture capital firms from around the world have been knocking on our door, as have foreign direct and portfolio investments. India will have the third-largest economy in the world by 2027, after the United States and China.

India's ascension on the global scene is signaled by the strapline on a recent cover of The Economist magazine: "Why India is indispensable."

Admittedly, the West's disillusionment with China is one factor in India's rise. Similar to how they did for Japan, Taiwan, South Korea, and China in the 1990s and 2000s, the geopolitical winds currently favor India. India is being courted by the West not just for its economic potential but also for its military might due to its location at the epicenter of the geopolitical conflict. Businesses are also quickly shifting their supply networks away from China and reorganizing them. This tendency has already helped India.

However, the Indian government has worked hard to be in a position to seize the chance if the geopolitical wind is in its sails. The government has started a number of reform initiatives. Some of them include the implementation of the GST, the bankruptcy law, the reduction of corporate taxes, the steps taken to formalize the economy, the initiatives to reform labor laws, the acceptance of contract labor across all industries, and the laser-like concentration on developing infrastructure. Import tariffs and the Production-Linked Incentive scheme have helped India's manufacturing sector grow. Government initiatives, such as inflation-targeting and the creation of an independent Monetary Policy Committee, have all contributed to keeping inflation under control. Privatization is a work in progress that will improve economic efficiency. The foundation has been set for a significant increase in both domestic and foreign investment. According to the proverb, "If you build it, they will come."

India is fortunate to have a significant presence in science and technology. Covid-19 highlighted India's advantages in vaccine production. India has become a world leader in electronic payments, and we are sharing our knowledge with other nations. It is unnecessary to review our technological advancements in space.

The major wind in our favor after that is demographics. India will remain young while most of the rest of the world ages and grows gray. The dependence ratio in India, which compares the population of non-working age dependents to the overall population, would only slightly increase from 47.5 percent in 2022 to 49.3 percent by 2050. In stark contrast, in 2050, this ratio will be high for China (71.1%), low for the US (64.6%), and extremely high for Japan (94.7%). In India, fewer dependents will free up more funds for economic development.

The RBI Bulletin's State of the Economy report, written by central bank researchers, stated that India was "poised to sustain a growth differential vis-à-vis the rest of the world on the basis of several fundamental factors," which makes sense. These include a demographic dividend, increased capital accessibility brought on by the economy's growing formalization and digital financial inclusion, the financialization of savings as a result of increased retail participation in capital markets, and a strong banking system with sound balance sheets. The report states that "India's time has come. We must gain control of the situation immediately.

Undoubtedly, there is still a lot of difficult work to be done. For instance, structural changes in the power industry are crucial, as is the prompt administration of justice. We must reduce bureaucracy and fight corruption. There will be political management required because development is by no means a smooth process and there will be conflicts about who will pay for its expenditures and who will receive its benefits. India's thriving democracy plays a key role in easing these tensions in this situation.

The demographic dividend can only be reaped if we are able to attract millions of new workers and when women begin to work in significantly higher numbers. It is essential to increase production by moving individuals from hankie-sized farms to higher-paying jobs. The formal sector must significantly grow. However, growth may treat a wide range of illnesses, and we currently have a once-in-a-generation chance to shift to a higher growth trajectory.

Perhaps most importantly, there is a sense of optimism and good cheer. There is a bounce in India's step and a newfound assurance. For example, the recent record commercial aircraft orders placed by Indigo and Air India are a strong indication of the nation's economy and aviation sector's long-term potential.

The country has discovered its voice, its mission, and its pace. This is not a case of triumphalism or jingoism. All that implies is that India, which is home to one sixth of the world's population, may look forward to quickly raising its standard of life and taking its proper place in the global community. Moneycontrol is optimistic about India as a result.