India at 77- A decade of transformation and the dawn of a new era

As India celebrated its 77th Independence Day, the reverberations of the country’s growth narrative could be felt from the towering Himalayan peaks to the serene coastal shores. The nation’s spirit was epitomised as the esteemed Prime Minister stood on the Red Fort’s ramparts, exuding a palpable confidence and clear vision for India’s economic trajectory.

“As poverty recedes, the vigour of the middle-class advances. Within the forthcoming five years, I assure you, India will ascend amongst the top global economies,” said the PM. “The strength of our middle class is bolstered by the 13.5 crore individuals who have triumphed over poverty.”

Already there are signs that the economy is in progress, indeed at a healthy pace. One of the most important transformations India has witnessed over the decade lies in the realm of finances. The rise in Foreign Direct Investment (FDI) from $22 billion in 2013 to an impressive $46 billion in 2023 encapsulates the global community’s renewed faith in India’s economic prospects. Even our own citizens, increasingly turning to mutual funds, propelled the sector from investments worth $100 billion in 2013 to a remarkable $500 billion in 2023. Another milestone in achieving greater financial inclusion through Direct Benefit Transfer which stood at $32bn in 2023 compared to paltry $0.89 bn in 2013.

Indian corporates are more resilient and stronger.

Corporate debt, which once stood at a staggering 65% of our GDP in 2015, has been systematically scaled down to 50% by 2023. This decrease not only points to a healthier corporate sector but also symbolises India’s determination to prioritize financial sustainability.

If financial growth was one side of the coin, the rapid infrastructure development we’ve witnessed is surely the other. The electrification of railways saw a sevenfold increase, going from 4,100 km in 2013 to an impressive 28,100 km by 2023. India’s highways, the veins of this growing nation, have more than doubled, going from 25,700 km in 2014 to 53,700 km in 2023.

Economic reforms have been instrumental in shaping this transformative decade. A leap in digital transactions from a mere 4.4% of our GDP in 2016 to a whopping 76.1% in 2023 showcases India’s digital vision and the execution prowess that turned this vision into reality. Alongside this, the simplification of our corporate tax structure, moving from 33.9% in 2013 to a more business-friendly 22% by 2023, has further enhanced our country’s global appeal.

Short-term challenges

Of course, in the immediate short term the road ahead isn’t without its challenges. In July, India’s inflation forecast saw an unexpected squall, pushing the mercury up to 7.44%. The culprit? A spike in food prices, with vegetables taking centre stage, including tomatoes.

But while food prices are skyrocketing, the core inflation tells a different story. Falling to 5.0% YoY, core inflation shows a resilience offer a glimmer of optimism for the future. Interestingly, demand-driven core inflation showed robust sequential momentum. Housing, recreation, education, and personal care emerged as frontrunners in this marathon. Moreover, this has been a pattern for the past five months, suggesting that this isn’t a flash in the pan.

Another layer to this multifaceted scenario is the performance of the Industrial Production Index (IIP) for June. Although it rose by 3.7% YoY, it was below the expected 5.0%. Yet, with broad-based growth, it’s not all grim. Manufacturing output and mining activity showed good figures, hinting that India’s industrial sector is flexing its muscles, ready to power ahead.

Caution back on the table

Not surprisingly, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) chose to maintain the repo rate at 6.50%. This decision was driven by the recognition that the recent food price shock, primarily attributed to perishables, required a careful and measured response, but may also be transient in nature while the food supply chain gets better.

The central bank’s focus, though, remained on the enduring elements of inflation. Interestingly, the shifting global discourse on economic narratives found little representation in this RBI policy.

And there’s a silver lining. Many experts predict that the current surge in food inflation will begin to recede around October or November 2023, likely leading to a more subdued inflation rate by Q4FY24. The consensus is that in FY24, the RBI will neither increase nor decrease rates, staying in sync with global policy movements, particularly the Federal Reserve.

The path ahead

That said, while the short term has its challenges, India still stands tall comparative with global economies that illustrates the exciting and promising path for India in the longer term. With a GDP per capita that offers ample room for growth, coupled with positive demographic trends, more capital investments, middle class demand driven growth, the country is on the brink of a long-wave economic upgrade.

The ability to navigate the multipolar world dynamics further cements our place as a rising global powerhouse. India’s GDP growth projection, poised at 6.5% for the coming years, only solidifies this belief. Moreover, India’s stable exchange rate, when currencies across the world are getting roiled, also indicates underlying economic strength.

So as we celebrate this Independence Day, it’s India’s transformation story that stands out for the ages. As we see the path ahead, it is evident that while we have come far, India’s growth journey has only just begun. The Prime Minister said, “Our goal is to strengthen the economy, empower the people, and make India a developed country.” No doubt, Amrit Kaal 2047 is illuminated with promise, and it beckons a brighter future for every Indian. Indeed.

Happy Independence Day!

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