Amid current geopolitical tensions, notably in the Middle East and Ukraine, India faces both challenges and opportunities. Geopolitical shifts heighten global risks, demanding informed decisions from governments and businesses, said Arun Singh, Global Chief Economist, Dun and Bradstreet (D&B) in an interview with BW Businessworld.
"The US-China tensions present India with a chance to expand its trade presence, particularly in categories where the US has imposed tariffs on China. India also stands as an alternative for foreign investments amid uncertainties, known as a "China Plus One" destination, benefiting sectors like pharmaceuticals, chemicals and engineering," Singh added.
For India's economic landscape, he stated that the focus in 2024 revolves around India's MSMEs and the entire startup ecosystem. Singh mentioned, "Improving credit access for MSMEs is crucial."
Notably, Dun & Bradstreet's recent whitepaper highlighted challenges such as a 28 per cent loan rejection rate. Proposed solutions include a PPP venture like Japan's Credit Risk Database to tackle the lack of credit history, potentially reducing the high MSME lending rates reaching 4.7 per cent.
He said, "Implementing strategies from Hungary, South Korea and Japan, like expanded credit guarantee schemes and improving loan recovery processes, can further bolster MSME growth by enhancing lending." Edited excerpts:
To start, could you provide an overview of the current state of the Indian economy as the world approaches 2024?
Approaching 2024, India's economic scenario reflects resilience and dynamism, building on an expected 6.2 per cent gross domestic product (GDP) growth in FY24. We are expecting GDP to grow at 6.4 per cent in FY25. The export sector has notably surpassed the target, crossing the USD 750 bn mark to reach around USD 777 billion in FY23, underlining India's global market potential.
Both manufacturing and service sectors, especially in financial, real estate, and professional services, have sustained their robust performance levels. This positive trajectory has attracted significant foreign direct investment (FDI), hitting an unprecedented USD 85 billion in FY22. Consumer confidence remains buoyant, as evidenced by consistent price hikes in the residential property market, experiencing a 7 per cent surge in 2022 due to post-pandemic demand.
Additionally, inflationary pressures have eased, with the RBI projecting a modest 5.2 per cent during Q1 2024. This outlook reflects effective management of monetary policy and a steadfast commitment to economic stability.
What are your overall projections for India's economic growth in 2024 and what key milestones or trends should we be watching for that will shape the Indian economy next year?
Our forecast anticipates approximately 6.4 per cent real GDP growth and 5.0 per cent average inflation for FY25, showcasing India's economic robustness driven by a burgeoning middle class, strong industrial sector and significant foreign direct investment.
In the economic landscape, the focus in 2024 revolves around India's MSMEs and the entire startup ecosystem. The growth potential of MSMEs hinges on policies tackling credit access and skill gaps, emphasising digitisation, export promotions, and sustainability. Meanwhile, startups are expected to invest in deep tech, expand in tier-II and tier-III cities, and prioritise social impact and sustainability, despite geopolitical uncertainties and upcoming elections posing potential risks.
Short-term milestones highlight India's nominal GDP surpassing USD 3.6 trillion, aiming for USD 4 trillion by FY25. The manufacturing sector eyes doubling export market share by 2030 through streamlined regulations. Global trends like offshoring, digitalization, and energy transition will drive India's expansion, but managing uncertainties and a global slowdown is crucial.
India's entry into the global bond index in June 2024 could draw USD 30 billion in G-sec market inflows, potentially securing an additional USD 10 billion from indices like the Bloomberg Global Aggregate Index.
How do you see technology and innovation influencing India's economic growth over the next few years? Are there specific sectors where technological advancements could have a transformative impact on productivity and efficiency?
Technology and innovation will be pivotal for India's economic advancement in the coming years. The nation is evolving into a global R&D hub, making significant strides in various sectors like network equipment, medical devices, aerospace, automotive, biotech, and computation. Retaining the 40th rank in the Global Innovation Index 2023, a substantial leap from the 81 position in 2015, marks India's progress.
Urban digital connectivity success should extend to rural areas, focusing on high-speed internet, improved broadband, and digital literacy. Following the introduction of 5G services in October 2022, the next phase of expansion is slated for 2024. The government's '100 5G labs initiative' aims to harness this technology's potential, customising applications for India's needs and the global market. India is also positioning itself as a frontrunner in 6G services development.
Technological advancements are set to revolutionise productivity and efficiency across sectors. As a global leader in IT and BPO services, India aims to become a premier technology and innovation hub. In the pharmaceutical domain, technological innovation will drive growth, especially in the burgeoning contract research segment.
How do you assess the effectiveness of current government policies in steering economic growth? Are there specific policy measures or reforms you would recommend to ensure sustained and inclusive economic development?
India's economy has seen robust growth, propelled by policies like the production linked incentive (PLI) schemes, focusing on local manufacturing and job creation. The government's investments in infrastructure, human capital and partnerships with emerging economies, evident through initiatives like Make in India, Digital India and Startup India, underscore their dedication to economic progress. The youthful population presents increased consumption and investment opportunities, driving anticipated growth.
For sustained and inclusive development, the government needs to tackle challenges like employment and navigate geopolitical uncertainties. Investing in digital transformation is key to achieving India's USD 1 trillion digital economy goal, requiring a 25 per cent compound annual growth rate (CAGR) in transformation to solidify India's IT prowess. Increased emphasis on research and development (R&D), supported by tax breaks, innovation hubs, and partnerships, will drive India's digital aspirations across industries.
Improving credit access for MSMEs is crucial. Dun & Bradstreet's recent whitepaper highlighted challenges such as a 28 per cent loan rejection rate. Proposed solutions include a PPP venture like Japan's Credit Risk Database to tackle the lack of credit history, potentially reducing the high MSME lending rates reaching 4.7 per cent. Implementing strategies from Hungary, South Korea and Japan, like expanded credit guarantee schemes and improving loan recovery processes, can further bolster MSME growth by enhancing lending.
To what extent do global economic conditions and trade dynamics influence India's economic performance? How should India position itself in the context of evolving global trade relations and geopolitical crisis, especially in the Middle East?
Global economic conditions and trade dynamics significantly impact India's economic trajectory. India's increasing role in the global economy, marked by reduced tariffs and minimal non-tariff barriers since the 1990s, emphasises its growing significance. The nation strategically aligns its exports with the global value chain, focusing on high-end manufacturing for exports.
Amid current geopolitical tensions, notably in the Middle East and Ukraine, India faces both challenges and opportunities. Geopolitical shifts heighten global risks, demanding informed decisions from governments and businesses. The US-China tensions present India with a chance to expand its trade presence, particularly in categories where the US has imposed tariffs on China. India also stands as an alternative for foreign investments amid uncertainties, known as a "China Plus One" destination, benefiting sectors like pharmaceuticals, chemicals and engineering.
India's proposed India-Middle-East-Europe Economic Corridor (IMEC) encounters hurdles, notably impacted by the Israel-Palestine conflict, affecting normalisation between Israel and several Arab states. Despite challenges, the IMEC stands as a strategic initiative to bolster India's connectivity with Europe via the Middle East. India must navigate geopolitical complexities adeptly to ensure the successful implementation of initiatives like the IMEC, contributing to sustained economic growth.
How do you view the current fiscal and monetary policy stance, and what adjustments, if any, would you recommend? What role should the Reserve Bank of India (RBI) play in supporting economic growth while managing inflation?
India's fiscal and monetary policies are finely tuned to bolster economic recovery. The government's focus on structural reforms and increasing investment while maintaining a sustainable budget deficit aligns with growth objectives. Simultaneously, RBI manages liquidity prudently, balancing credit expansion and inflation control, ensuring vital sectors access credit.
Amid economic shifts, the RBI must vigilantly monitor inflation and growth indicators. To spur activity during growth challenges, easing monetary policy could be considered. Conversely, persistent inflation due to energy price volatility might prompt a tightening of monetary policy, potentially raising interest rates. The RBI's focus on second-round effects of high food prices and inflation expectations highlights the need for caution.
Despite mixed indicators, the central bank remains optimistic about growth, potentially signalling a rate cut in the upcoming year's second quarter. Until then, managing inflation impulses through OMO sales will be prioritized.
Collaboration between the government and RBI on structural reforms, infrastructure, and human capital development is essential for sustainable growth. Clear guidance from the RBI will manage market expectations and ensure financial stability. Overall, a coordinated and cautious approach from both fiscal and monetary authorities is pivotal in navigating today's economic complexities.