Will India be the engine of growth for the global economy in future?
India is well on track to sustain its position as one of the world’s fastest-growing economies. It will be an engine of growth for the global economy for the next few decades and it could play the role China did for the world economy during the last two decades. The reforms have started to pay off but the country will still have to take further concrete steps towards more structural reforms.
These are the worlds of Ranil Salgado, the International Monetary Fund’s (IMF) mission chief for India who claims that India now contributes 15 per cent of the growth in the global economy, in purchasing power parity measures, which is substantial. This is behind only to China and the US. If the spillovers from India have not been big, that is because it is not a very open economy. IMF, he said, views India as a “long run source of global growth” adding that the country has three more decades to reach the zenith before it hits the point where the working-age population starts to decline. “This is India’s window of opportunity in Asia.”
This is quite contrary to what some skeptics had started saying about India’s growth potential, post economic deceleration in the past few quarters. IMF is forecasting India’s growth to rise to 7.3 per cent in FY 2018-19 and 7.5 in FY2019-29, on strengthening investment and robust private consumption.
The skeptics, it seems, had become too worried a bit too early! If we look back past 50 years, India’s long-term growth potential has been steady, stable, diversified and resilient, and more remarkably, without any prolonged reversals. The growth that averaged 4.4% during the 1970s and 1980s accelerated to 5.5% during the 1990s and early 2000s and even further to 7.1% subsequently.
This long term stability and ascent is because it is not dependent on one or two factors. Be it agriculture, industry or services – there has been good support from all the sectors. The growth in the services sector has been exponential post-liberalization in 1991 and has remained largely stable, thus contributing to the overall stable growth in the country’s economy. All three sectors viz. services, industry and agriculture (in this order) have given their contribution. Furthermore, this growth has been driven by an increasing share of investment and exports, with a fair contribution from consumption.
Remarkably, despite India’s long-term sustained growth story, IMF feels that it is only now that India as an elephant has started to run! This is the reason why experts feel India is right on track to sustain its position as one of the world’s fastest-growing economies but with a rider that further reform efforts are undertaken and bottlenecks to specific drivers of growth are removed.
The IMF expects India’s $2.6 trillion economy – currently third-largest in Asia – to grow by 7.3% for fiscal year 2018-19.
A chief factor contributing to India’s remarkable growth experience is due to the country’s large and spatially diversified economy and also to its diversified production structure that is not dependent on few products, commodities, or natural resources, its diversified trade basket and a great number of trading partners. Owing to these factors, the slowdown in one part of the world or one particular period has not impacted India as compared to several other big economies.
Question remains, what are the riders that need to be kept in mind? As said by IMF, effective structural reform agenda should be pursued and political upheavals should not be allowed to impact the economy. Solutions need to be found immediately for problems that continue to impact growth. Banking reforms are essential for maintaining the macroeconomic stability. Moreover, policy planners need to ensure that the per capita income of more than 1.3 billion population increases, further ensuring that this growth is not collected in few hands but is widespread, so much so that the income of at least 50% of population is raised to the levels of the global middle class.
Time is not to become complacent but to make efforts to drive the economy to higher levels. Past experiences have shown that the countries which saw high growth rate saw subsequent deceleration.
Much has been done to shore up the reserves of banks in the last 10 years and to put in place more rigorous oversight of the financial sector, but “risks tend to rise during good times, such as the current period of low interest rates and subdued volatility, and those risks can always migrate to new areas,” IMF warned.
Planners have to remain agile because with global debt levels well above those at the time of last financial crash in 2008, there is always a possibility that unregulated parts of the financial system could trigger a global panic, leading to large-scale losses.