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Informist, Friday, Oct. 18, 2024

 

MUMBAI – India is poised to grow the fastest amongst major economies over the next three years, and is likely to become the third-largest economy by 2030, S&P Global said in a report. The economic growth would be driven by improvement in the country's fiscal space, coupled with the benefit of supply-chain relocation, it said.

 

"Its 2024 entry into JP Morgan's Government Emerging Market Bond Index could provide additional government funding and unlock significant resources in domestic capital markets," S&P Global said. "This is only a first step — investors will continue looking for improved market access and settlement procedures." India has also taken measures to improve its weak fiscal flexibility by boosting its capital expenditure, further supporting long-term growth, S&P Global said. 

 

With the economic slowdown in China, there has been a shift in the global supply chain. India's economy is likely to get a boost, as it is amongst the emerging markets to benefit from supply chain relocations, S&P Global said. It cited "mature manufacturing" and strategic ties with the US and other developed markets as drivers of the supply chain relocation to the country.

 

While low labour costs and innovative schemes pegged India as a major destination for a global supply chain shift, the sustainability of this strategy, which was earlier employed by China, remains uncertain, according to S&P Global. Nonetheless, citing the advantage of having a large domestic market, S&P Global said, "The sheer scale of sales opportunity in the Indian market has also provided 'in-market, for-market' justifications for investments in manufacturing in the country."

Citing S&P Global Market Intelligence forecasts, it said India's consumer spending on goods was worth $1.29 trillion this year. Further, inflation-adjusted growth is likely to increase to 7.0% in the next five years, up from the 4.8% growth seen in the past five years, it said. "The acceleration in growth is particularly marked in export industries such as apparel (9.5% in the next five years), household equipment including appliances and electronics (8.8% in the next five years), and transport equipment (8.5% in the next five years)," it added. Apart from domestic demand, the Indian economy is likely to see support from exports. "Contracted electronics manufacturers also export products, particularly smartphones, driving 44% annual growth in telecom equipment exports from 2015 to 2024," it said.

 

India's lower foreign currency debt, representing 15% of the total sovereign debt, can act as a shield from shocks due to volatile exchange rates or trade imbalances. "India boasts high momentum in policy favorability," S&P Global said. The government needs to establish policies to upskill the workforce both generationally--for example, schooling--and in the short term--for example, incentives for workplace education. Such policies are also required to reduce the "brain-drain", S&P Global said.

 

Enumerating factors that can prove to be a challenge to India's growth, it said, "Heavy-handed application of trade management conditions, as India tried but abandoned for laptop computers in 2023, can dampen global investment." The government should instead look at widening the range of assembled products that benefit from production-linked incentives. It could "drive economies of scope that make upstream supply chain investments more compelling," S&P Global said.

 

The country's rising population also presents mounting challenges in basic service coverage and growing investment needs to maintain productivity, the report said. Further, economic losses due to water stress--a chronic risk that materialises slowly over time--will be particularly pronounced in countries, including India, it added.

 

Over the next decade, emerging markets, with an average growth of 4.06% through 2035 compared with 1.59% growth in advanced economies, will play a crucial role in shaping the global economy, S&P Global said.  End

 

US$1 = INR 84.07
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Sourabh Kumar

Edited by Namrata Rao

 

 

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