Economy
From Being Part Of 'Fragile Five' Economies Decade Ago, Now Potentially Passing China As Driver Of Global GDP: Barclays On India
Bhuvan Krishna
Oct 11, 2023, 05:05 PM | Updated 05:05 PM IST
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India has the potential to surpass China and become the biggest driver for global growth, according to a report by Barclays.
The report suggests that in order to achieve this, India should aim for an 8 percent growth rate.
Barclays' analysts have observed that India's growth has been impressive, with strong expansion and low inflation, as reported by Moneycontrol.
They predict that India will achieve at least 6 percent GDP growth while maintaining macro stability.
One of the key concerns raised in the report is whether India can achieve faster growth without compromising its hard-earned macro stability.
The report acknowledges that maintaining macro stability has been a priority for India since the Ukraine-Russia war, and it questions whether authorities can encourage rapid growth without jeopardising this stability.
Despite economic turbulence in other parts of the world, India has managed to maintain relatively positive macro outcomes in the past two years.
The report notes that India is once again on track to be the fastest-growing major economy in the medium term. This is particularly significant as global growth is expected to be weaker in the coming years compared to historical levels.
The report highlights the remarkable turnaround in India's investment appeal.
Just a decade ago, India was considered one of the 'Fragile Five' economies, facing macro instability due to heavy debt, an unstable financial sector, and weak fiscal policies.
However, the report acknowledges that India has successfully addressed these issues and has become an attractive investment destination.
India's growth has slowed in 2023, but it remains higher than its global peers and maintains macro stability.
The government is focused on managing inflation, and India has been the fastest-growing major economy (excluding China) over the past decade. However, its contribution to global GDP remains relatively small compared to China and the US.
Although India is projected to continue outpacing China in terms of growth in the next five years, its contribution to global GDP will still be lower.
To achieve this growth, the government needs to implement certain economic preconditions.
These include increasing the nominal savings rate to 32.3% of GDP (currently at 30.2%) and achieving incremental growth in the workforce of 3.5% per annum (currently at 1%).
The report suggests that this can be accomplished through increased female participation, a larger global export share, and productive use of capital.
The report identifies the investment cycle as a potential driver for India's economic growth.
While the investment ratio has declined since its peak in FY08, the report believes that additional investment can generate returns at a more productive pace.
The report also emphasises the need for greater investment in traditional sectors, as capacity constraints are emerging in areas like telecommunications and digitisation.
It further calls for more public investment to drive overall investment and push the GDP growth rate closer to 8%.
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Bhuvan Krishna is Staff Writer at Swarajya.
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