India's economic growth rate is recognized as one of the most impressive in the global economy, according to World Bank President Ajay Banga. Speaking on Thursday in anticipation of next week's annual meeting of the World Bank and the International Monetary Fund, Banga emphasized India's resilience, noting that much of the country's growth is driven by a robust domestic market.
He described the reliance on domestic consumption as a positive sign for India's economy but highlighted areas needing improvement, particularly in air and water quality—issues that Prime Minister Narendra Modi has also prioritized.
Ajay Banga, CEO Mastercard (Photograph By - Vivan Mehra)
Anna Bjerde, the World Bank's Managing Director for Operations, echoed Banga's remarks, stating that the organization is helping India transform its growth into sustainable development and job creation. She also underscored the necessity of increasing female workforce participation, which remains a crucial aspect of India's economic potential.
The World Bank is collaborating with India on urban development initiatives aimed at enhancing city livability, focusing on improving air quality, water supply, and urban planning.
In a related development, a report by S&P Global Ratings released on Thursday projects that India will become the world’s third-largest economy by 2030. However, the nation's rapidly growing population poses significant challenges in delivering basic services and addressing rising investment needs. The report highlights India’s ambitious economic goals, including a target to expand its economy to $30 trillion by 2047, up from its current $3.6 trillion. Currently, India ranks as the fifth-largest economy globally.
Comments by Ajay Banga
"There is no doubt that India's growth rate is among the shiniest parts of the world economy," Banga said. "Growing at six to seven percent in this environment shows that India has taken significant steps to reach this point."
"We are actively working with India on these issues, and I expect we will see more tangible results in the coming months through various projects," Banga added.
Robust growth trajectory
The fiscal year 2024–25 began on a strong note, with goods and services tax (GST) collections reaching a record monthly high of 2.1 trillion Indian rupees in April, maintaining a healthy pace in May and June.
The robust readings of the HSBC India Purchasing Managers’ Index (PMI) thus far in fiscal 2024–25 indicate that activity in both the manufacturing and services sectors is significantly above the neutral threshold of 50, suggesting expansion. This robust growth seems to be a major factor driving GST collections and enhanced compliance. The HSBC India PMI is compiled by S&P Global Market Intelligence, and the India Composite PMI Output Index has hit one of its highest levels in nearly 14 years, bolstered by favorable economic conditions, strong demand, capacity expansion, an increase in new work intake, and gains in productivity.
Over the past year, India has consistently led the world in private sector PMI output expansion.
There has also been a rise in new export orders for goods and services, which, coupled with strong domestic demand, is driving growth in total sales and business activity. Qualitative data from the PMI surveys indicate that manufacturers and service providers worldwide are experiencing new business gains.
Looking ahead, we anticipate India's real GDP will grow by 6.8% in the current fiscal year, a moderation from the high base established in fiscal 2023–24. The effects of the Reserve Bank of India's (RBI) rate hikes from May 2022 to February 2023 are beginning to take effect, likely putting modest pressure on demand in fiscal 2024–25. Regulatory measures aimed at curbing unsecured lending are also contributing to a slowdown in credit growth. Additionally, the government's planned fiscal consolidation will result in a reduced fiscal stimulus for growth. Despite this, at 6.8%, India is expected to remain the fastest-growing large economy.
Achieving a balance between private and public investment for sustainable growth
India’s post-pandemic recovery has been bolstered by government infrastructure projects and household investments. However, a widespread recovery in corporate investments from the private sector—responsible for roughly 37% of total investment in the country—has yet to occur. This is despite the private sector's improved capacity to invest, aided by a competitive corporate tax system, robust corporate balance sheets, and the government’s Production Linked Incentive (PLI) scheme.
Given the constraints on India’s fiscal environment, the private sector will need to take on a greater share of investment responsibilities. With the net general government debt standing at around 86% of GDP, the government may opt to strengthen its balance sheet to build fiscal buffers.
India's fiscal environment is limited
In recent years, the corporate sector has reduced its debt levels, enhancing its financial flexibility and capacity for expansion.
There are early indications that the private sector investment cycle is gaining traction. Government spending on infrastructure, along with a revival in the housing market, is encouraging private investments in related industries such as steel and cement.
Policy initiatives are contributing to improvements in India’s logistics environment, thereby supporting investment. Nevertheless, India’s logistics performance still lags behind that of its regional counterparts, prompting policymakers to implement industrial strategies aimed at fostering private investment in key areas.
Additionally, private corporate investment is increasing in certain emerging sectors where the Production-Linked Incentive (PLI) scheme has been implemented. Electronics and pharmaceuticals stand out as two success stories in this regard. In the coming years, solar photovoltaic manufacturing and advanced carbon composite batteries are expected to attract significant investments under the PLI framework. However, according to CRISIL estimates, PLI-driven investments may peak in fiscal year 2025–26 unless new sectors are introduced.
CRISIL Research's evaluation of over 700 large and midsize listed companies—excluding those in oil and gas, as well as banking, financial, and insurance services—reveals an 8% increase in capital expenditure between fiscal years 2020–21 and 2022–23. However, this momentum has not been uniform across the board. Capital expenditure is measured as a change in the gross block, reflecting the total value of all assets owned by a company.
India's increasing role in global economic growth
Boosting productivity is expected to enhance India's growth, with the economy projected to expand at an average rate of 6.7% through the end of the decade. As per forecasts from S&P Global Market Intelligence, the country’s nominal GDP is anticipated to nearly double, reaching over US$7 trillion by fiscal year 2030–31, up from US$3.6 trillion in fiscal year 2023–24. This growth would position India as the third-largest economy globally, increasing its share of the world GDP from 3.6% to 4.5% and elevating its per-capita income to the upper-middle-income level.
Comments