As the year 2022 draws to a close, the most notable achievement for the Indian economy was that it overtook that of the United Kingdom in GDP terms. And that too in the very first quarter of FY 2022-2023. This made it the 5th largest economy in the world, on its way towards $4 trillion in GDP before long.
The feeling of continuum is a key feature of the Indian economy in 2022 and going forward. The days of abrupt changes in policy that were seen to be disruptive, have ended with the departure of coalition governments, as of 2014, and are unlikely to return, even post the general elections of 2024. This is crucial for India’s economic outlook. Without continuity, all bets are off.
By 2028, India is expected, by several international lending and rating agencies, to reach the No. 3 slot, having overtaken both Germany and Japan. It will then be behind only the United States at No.1 and China at No. 2. This is on nominal GDP terms, though India is very well placed at No. 3 in purchase power parity (PPP) terms.
This PPP also helps India’s vast population of 1.40 billion and climbing, because the low per capita income of Rs 1.5 lakh in 2022, still buys quite a lot in comparison. Two earning members from a family at the bottom of the pyramid can still pull in Rs 3 lakh per annum.
A ‘developed’ country like Britain, in contrast, with per capita in the region of $46,510.30 in 2021, has its common people going through difficulty meeting basic food and energy costs at present.
One of the reasons for 2022 doing so well for us is India’s excellent and quick bounce back from the Covid-19 pandemic. Its handling of the pandemic by inoculating over a billion people, mostly free-of-cost, and at a fast pace, with at least one highly effective home-grown vaccine, was nothing less than spectacular.
The other was the Astra Zeneca licensed vaccine, which has also performed very well. Both have demonstrated an efficacy of over 75 percent. No other country can claim such dramatic success with consequent low loss of life, even though most developed countries have vast budgets and very small populations. India has also shipped Covid vaccines free of cost to a number of countries that requested them, along with other medicines.
This clear staking out of India’s position as ‘pharmacy to the world’ over the period 2020 to end 2021 gave it immense global stature, particularly amongst the ‘Global South.’ This benign and beneficial stature will not be forgotten as it goes into 2023 as the Chair of the G20 Summit. Nearly 30 countries will participate including some 10 invitees. How 2024 turns out will have a lot to do with agreements arrived at with the G20 participants.
However, India did not make much money from medicines, nor does it intend to profiteer in future, because its largely generic drugs are not high-priced, even as they pose a long-term commercial threat to the Western pharmacological industry. Consequently, there is a fair amount of malicious misinformation against Indian efficacy and quality.
The Indian economy is presently growing at between 6 percent and 7 percent per annum according to various independent estimates. It is adding $400 billion per annum to its tally, according to Morgan Stanley.
The World Bank has revised its estimates upwards in October 2022 and expects India to grow at 6.9 percent in 2022-2023 and 6.4 percent in 2023-2024. It is also expected to maintain this momentum year-on-year for at least a decade, going forward.
By way of contrast, in 1990, just before the sharp balance of payments crisis and the urgent sweeping reforms in 1991, the entire Indian economy was at less than $400 billion. This sluggishness over four-plus decades was due to an overreliance on socialist policies and a highly regulated economy that failed to deliver. Now, the size of the Indian economy and the momentum of its growth – both have picked up considerably. India is acknowledged as the fastest-growing economy globally.
Exports, which were never India’s strong suit in the past, came to the rescue during the pandemic when various other sectors of the economy were depressed or even inactive. They are expected to touch $1 trillion by 2030, according to Commerce Minister Piyush Goyal.
In nearly one year of the ongoing Ukraine war, India has exported rice, grain and other food items, as it is a food surplus. Another feature now descriptive of the Indian economy is that it was dependent on food aid in the 1950s and 1960s when the population was less than a third of what it is now.
The vast domestic market, however, is India’s mainstay, with consumption and investment accounting for 70 percent of the economy. This makes it an attractive destination for foreign investors as well.
India, on its part, has been pumping up its capital expenditure in infrastructure, capacity building, connectivity, and modernisation at an unprecedented pace. This, in turn, is having an entirely positive knock-on effect on the economy by removing chronic bottlenecks and inefficiencies at a dynamic pace.
At a time when multiple Western countries are keen to reduce their dependence on a Chinese supply chain, India stepping up to the plate with the requisite infrastructure and the offering of incentives to relocate/manufacture here is very timely. Giants such as Apple Industries have already taken advantage of the opportunity. Several high-end semiconductor manufacturers from Taiwan and elsewhere are in the process of starting factories in India.
Electronics and automobiles including componentry are already growing fast and are big employers. Other unicorns and start-ups, valued at over 332 billion, making India the unicorn/start-up capital of the world, offer exciting employment possibilities. The development of Artificial Intelligence (AI) applications alone hold out the prospect of millions of new jobs.
India’s macroeconomics is solid beyond just the growth statistics. Its current account deficit is well financed by foreign direct investment and dollar reserves that are hovering close to $600 billion, even after dipping to try and shore up the falling rupee against a surging US dollar.
India is working hard to enter into rupee trade with Bangladesh and Sri Lanka after establishing a rupee-rouble format for trade with Russia. This will, as it grows, reduce India’s dependence on the American dollar.
This, even as clean energy initiatives — meaning non-fossil fuel — will cut 40 percent of India’s ever-growing and costly petroleum import bill. With a current 80 percent dependency on imported fuel, this is the hardest inflationary item to manage and roils the strength of the rupee vis-a-vis the dollar.
The purchase of most of India’s oil and gas needs from Russia and others at discounted rates over the last year has, however, contained domestic inflation to reasonable levels. India has also been exporting refined petroleum products at an elevated pace during the logistic difficulties posed by the war in Ukraine. Prices have been aggravated by international sanctions, sharp cuts in production by OPEC (Organisation of the Petroleum Exporting Countries) and other oil and gas-producing countries. This has kept oil prices high at a time when Europe and America are struggling with higher rates of inflation of between 6 percent and 11 percent — never seen by these economies in the decades since WWII.
India’s thrust towards aatmanirbhar manufacturing has borne fruit in 2022 with several beginnings in the defence manufacturing industry. With 68 percent of items proscribed from the imports list, the Indian industry — both public and private sector — are reaping the benefits. In addition, because of the quality of armaments made in India, a new defence export market is growing. Brahmos missiles were exported to the Philippines in 2022. Other countries such as Vietnam, UAE and Egypt have lined up for these and other Made in India missiles. Armenia has bought Indian rocket launchers and radars. The Tejas fighter aircraft is not only filling shortfalls in the Indian Air Force but is also being looked at with interest by other countries. Indian drone manufacturing is growing fast. So is the manufacturing of automatic machine guns, cold weather gear, bullet-proof vests, boots, ammunition, rifles, armoured cars, transport aircraft in a joint venture between Airbus and Tata, light tanks, heavy tanks, howitzers, rocket-launchers that are mobile and superior to the Russian ones. There are frigates, submarines — both nuclear and conventional, and aircraft carriers. The Indian Defence Industry has not only been growing significantly in 2022 but has the potential to become a percentage player in the global arms markets at a fraction of the price of its Western competitors.
Certain things like fighter engines and naval gas turbine engines are yet to be developed but vigorous joint venture talks are on with France, the US and Britain. This, even as we scale up Indian R&D on an urgent basis, to take care of the threats posed by a two-front war with both China and Pakistan. Making our own aircraft and naval engines will go a long way towards essential security.
Indian Space Research Organisation (ISRO) has made great strides, not only by launching heavy rockets and multiple satellites into orbit but also by hosting private players to do likewise. But there was a time, decades ago, when it was denied cryogenic engine technology by the West and Russia, and had to develop it on its own. Now, like the National Aeronautics and Space Administration (NASA), it is also working on a reusable space vehicle for multiple visits to space.
A sector that now rivals agriculture both in the share of the GDP and the numbers it employs is the real estate sector. This activity has been and will continue to be a magnet for surplus rural labour. After a number of years of oversupply, it picked up in 2022 and is expected to continue surging in 2023. The demand for housing and commercial properties is almost insatiable in a country like India. People see it as security only next to gold and refuse to let naysayers and economists dissuade them from buying either.
And yes, India’s contribution from agriculture to the GDP is now at 20.19 percent. It is the services that account for 53.89 percent and manufacturing is slowly growing to claim 25.92 percent. Will the share of the service sector shrink going forward, as manufacturing, exports, real estate etc grow? It is likely, but it will only be a slightly smaller percentage of a bigger pie.
In future, the leading factor that will distinguish the Indian economy is the degree of its digitisation which is already advanced when compared with the West. 5G and 6G, both developed domestically, will play their part to deliver goods and services and blow out the financial economy.
The number of Indian companies that will attain the scale of being billion and multi-billion-dollar companies will be significant in 2023 and beyond. You cannot compete internationally without this scale. This, even as the Micro, Small and Medium Enterprises (MSME) sector, often touted by Communists as the neglected Hoi Polloi, will rapidly convert itself to supply this giant series of corporations. There will be greater integration, better quality, and less overlapping wastage.
In a sense, India is simultaneously moving on all fronts. This, of course, is essential to a well-rounded economy. That the Indian economy is not overburdened with debt, particularly external debt, puts it in a good position to realise its ambitions in 2023 and beyond. This is what pleases the World Bank and the International Monetary Fund (IMF) the most, because they can count on less volatility, something they can’t say too often in today’s troubled world.
The writer is a political commentator. Views expressed are personal.
Read all the Latest Opinions here
Comments
0 comment