Today 5th, soon 3rd: Nirmala on India’s economic trajectory
According to State Bank of India (SBI), India surpassed UK as the fifth largest economy “as early as December 2021 itself” and it is set to become the third largest economy by 2029.
Job creation and equitable income distribution are the main priorities of the government, finance minister Nirmala Sitharaman said on Wednesday, even as she emphasised the resilience of the Indian economy and the reason why the country remains an attractive destination for foreign investors.
Sitharaman also commented on the size of the Indian economy, and indicated that it’s expansion was inevitable: “Today, fifth, soon, third…”
According to State Bank of India (SBI), India surpassed UK as the fifth largest economy “as early as December 2021 itself” and it is set to become the third largest economy by 2029. India is now placed after the US, China, Japan and Germany according to a projection by the International Monetary Fund (IMF). Emerging markets — Sitharaman named India, Indonesia and South Africa — will “lead the global economy in the next 50-60 years”, the minister said.
She added that India has three key strengths to attract foreign investments: the size of the Indian economy, demographic dividend, and rapid digitalisation.
The minister pointed to global economic turbulence that’s roiled many economies and stressed on the need for greater synergy between countries in dealing with this. She was speaking at “India Ideas Summit 2022”, organised by the US Chamber of Commerce’s US-India Business Council (USIBC).
Sitharaman’s observations on jobs and equitable growth are in keeping with data that shows that the unemployment rate surged to a year’s high of 8.3% in August (according to CMIE), from 6.8% the previous month. It is also in keeping with a view among many analysts that India’s recovery post-pandemic has been K-shaped, with large companies and the rich seeing a significant improvement in their prospects even as small enterprises and the poor languish.
The minister mentioned the three as “red letter” priorities. “I’m not sure I can have the luxury of sequencing priorities. In my job, several things will have to happen simultaneously. Well, of course some are red-lettered and some others may not. And the red-lettered ones would be definitely jobs, equitable wealth distribution, and making sure that India is still moving on the path of growth. In that sense, inflation is not red-lettered,” she said.
“I hope, it doesn’t surprise many of you. We have shown that in the last couple of months we were able to bring it under some manageable levels,” she said.
After hitting a peak of 7.8% in April, India’s retail inflation — measured by the consumer price index (CPI) — gradually moderated to 6.71% in July. India’s GDP grew at 13.5% in the quarter ending June 2022, much lower than the 16.2% forecast by the Reserve Bank of India’s Monetary Policy Committee (MPC).
The latest edition of EY Economic Watch released on September 1 stressed on the need for inclusive growth in the long run. DK Srivastava, chief policy advisor of EY India said that “post becoming the largest population economy in 2023, India may also become the largest GDP economy in PPP terms during the 2050s if it accords adequate policy priorities to the expansion of health, education, and infrastructure and focuses on significantly improving the employment elasticity of output”.
Sitharaman said that contrary to the past when it was just a supplier of cheap labour, India today has “skilled, technically savvy new collar” workers providing solutions to the world.
Abhishek A Rastogi, Partner at law firm Khaitan & Co said, “At a time when major global economies are slowing down, India is the world’s fastest growing economy. India is catching attention of investors because of its vibrant democracy, political stability, rule of law, globally-acknowledged leadership position, conducive business environment, incentives for setting up manufacturing units, vast domestic market and tremendous potential for exports through FTAs [free trade agreement].”
The minister said the world is going through “turbulent changes” affecting all countries and there is a need to “synergise efforts” of major economies not only to come out of this crisis but also to help those countries that are struggling for basic needs such as food and energy.
Pointing to energy price volatility mainly due to the Ukraine war, she said this would derail global efforts to check carbon emission. “We are very concerned. We, meaning not just India, but you as well,” she said. Many countries would not be able to achieve their energy transition targets because the current energy crisis, Sitharaman explained. “Indeed, it should surprise each one of us that we have not even thought about such extreme exigencies. That many of us are now, without blinking an eyelid, saying that sorry we have to go back to coal, at least for some time,” she said.
India will be “taking over as G-20 chair at a challenging time”, the minister said, adding that New Delhi would soon release its “focus areas” for the summit.
Sitharaman said the government would review the performance of the National Infrastructure and Investment Fund to strengthen it. She also said that a new Data Privacy Bill addressing the needs of all stakeholders would be out soon.
The minister told the audience that “India’s Open Network for Digital Commerce has revolutionised the retail and manufacturing sector”, and offers investment avenues for US companies. Sitharaman spoke about the “India Stack” a set of digital public goods that have made India a global leader in fintech and digital payments and said several countries are in talks with India about whether this could “become the global stack” and facilitate cross-border payments.