India can sustain 7% growth in coming years: S&P’s Kuijs
Foreign investments, high domestic savings, and fixing supply-side gaps will support growth
India can sustain 7% growth annually in the coming years, propelled by investments flowing into the country, high domestic savings, and by addressing supply-side challenges, Louis Kuijs, chief economist, Asia-Pacific, at S&P Global Ratings, told Mint.
If the government continues to work on resolving challenges related to infrastructure, institutional factors, labour laws, land acquisition rules, and education, the country can aspire to grow even faster, Kuijs said.
“It is important to work on those supply side areas if you want to achieve something like 8% growth,” he added.
As things stand, India remains the fastest-growing major economy amid a slowdown in global growth, especially among advanced nations, affecting global trade.
The statistics ministry, in its second advance estimate released in late February, has pegged India’s economy to expand at 7.6% in FY24 amid strong investment growth in plant and machinery, robust manufacturing growth, and a slight improvement in trade.
India, due to its huge population, has a large domestic market that local manufacturers can leverage, Kuijs said.
“If Indian industry can produce most of the goods that its middle class is looking for, it would help a lot in keeping growth more sustainable compared
INDIA can aspire to grow even faster if it resolves gaps in infra, labour laws, etc., Kuijs said
IF Indian industry can make goods its middle class wants, it would sustain growth, Kuijs said homework to do in India with increasing the role of the manufacturing sector and making sure that it can compete in global markets and also against imports in its domestic market without the need to raise import tariffs,” he added.
The Indian government aspires for the country to become a $7-trillion economy by 2030, driven by its manufacturing capabilities. India is expected to become a $5-trillion economy in the next three years, which would make it the third-largest in the world.
BUT, he said there is still quite a bit of homework to do for India to be able to compete globally
to the scenario where India has to completely rely on other economies (as a market for its manufactured goods),” he said.
“However, there is still quite a bit of
India’s push for manufacturing comes at a time when companies in advanced Western economies such as the US are looking to move away from their reliance on Chinese goods.
“A lot of multinationals have relocated production away from China to other places. But what has offset this to some extent is the rise of domestically oriented supply chains in China,” Kuijs said.
“I think that the China-plus-one policy or the readjustment of global supply chains is happening, but it is not happening as fast as perhaps people had expected or hoped for,” he added.
Kuijs expects the US central bank, the Federal Reserve, to cut its interest rate (repo rate) by 75 basis points around the middle of this calendar year, and the Reserve Bank of India to slash its repo rates by 75 basis points during FY25.“When I look at the US inflation data, it doesn’t look that good. When I look at Asian inflation data, including India’s, it still looks quite okay. Indian core inflation has behaved quite modestly, even as food prices have been a bit of an issue,” Kuijs said.
“So it’s going to be interesting to see which Asian central bank will be comfortable with starting to move ahead of the Fed (in terms of cutting repo rates). Because in some emerging markets, for instance, Indonesia and Thailand, we now have quite significant real interest rates. And I think that domestically pressure will rise on those central banks to start to cut (rates), even if the Fed doesn’t cut,” he added.