India has paved its way to surpass Germany and Japan and emerge as the third-largest economy by 2027 due to the key investments and Global trends the country has made in technology and energy.
The Indian economy has turned out to be one of the fastest-growing economies in the world. And after seeing the exponential GDP growth rate at 9.1% in the FY (21-22), India has emerged as a highly desirable destination for multi-national corporations operating in various industries. India has achieved an unprecedented milestone by attracting foreign direct investment inflows (FDI) worth USD 85 billion. The manufacturing sector alone witnessed a remarkable increase of 76% year-on-year, with FDI inflows exceeding USD 21 billion.
India’s subsequent GDP growth rate for the financial year (FY22 – 23) had the eyeballs of all the economists and analysts who closely monitored the factors that were deriving this subsequent growth. But in comparison to the FY (2021-2022), the GDP growth rate, which was earlier 9.1%, was reduced to 7.0% in the FY (2022-2023). In March 2023, the yearly increase in consumer prices in India decreased to 5.66%, which is the lowest level seen since December 2021. This is down from the 6.44% reported in February and is just below the predicted rate of 5.8%, according to the market.
India is still the fastest-growing economy compared to other countries due to significant factors like global offshoring, energy transition, and digitalisation. Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India, stated, “We believe India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade. Resulting, India is acquiring power in the world order, and these changes imply a significant generation shift and a great opportunity for the companies and investors.
“The Indian economy continues to perform well and remains the fastest growing Asian economy, and one of the fastest growing in the world,” Anne-Marie Gulde-Wolf, Deputy Director for Asia and Pacific Department, IMF, told PTI in an interview. She added that the IMF had revised its growth forecast for India, considering the latest data. The downward revision was made on the grounds of the expected slowdown in consumption growth. Along with this, she also indicated that “Investment can only be the main driving force for growth as witnessed by double-digit credit growth, and strong PMIs and a budgeted Government Spending Programme. She also said that Infrastructure investment potentially has a large impact on medium-term and potential growth and hence is an important policy priority.
Comparing India’s Economy to Other Nations
India’s Economy is performing much better than other countries. India’s GDP is $3.47 Trillion as per IMF for CY22. India’s economy is growing at a rate of 6.8% as compared to the US at 2% and Euro zones at 3.5%.
The turmoil in the Banks of Europe and the US has not yet had direct notable effects in Asia, but Asian banks could experience the ripple effects of increasing interest rates and funding costs. And in some Asian countries, corporate and household debt levels have increased significantly, giving birth to severe concerns about the major economic fallout from such interest rate hikes.
Many Asian countries are expected to experience slower GDP growth in the medium term due to ageing populations and lower productivity growth, indicating the necessity for structural and labour force reforms. However, India stands out as a counter-example where appropriate policy measures can tap into the “demographic dividend” and potentially boost actual and potential growth.
China’s economy grew slower than India’s for the first time since 2016. As per China’s National Bureau of Statistics, China’s GDP increased by 3% to ¥121.02 trillion ($17.94 trillion) from the previous year. However, it is seen as China’s economy’s weakest performance since 1976. The slowdown was primarily due to China’s zero-Covid strategy and reduced global manufacturing demand. India’s economy has grown despite rising prices. The Inflation rate hit 6.52% in January, which was above the goal of 6% as stated by the Reserve Bank of India. In response, the Indian central bank raised interest rates by 0.25%, bringing it to 6.5%.
Driving Factors for India’s Economic Growth
India has become one of the world’s fastest-growing economies, and it currently offers a prosperous and thriving atmosphere for both domestic and foreign investments.
India’s economic growth has been heavily driven by its domestic consumption, which is primarily led by the private sector. The country boasts an estimated middle class of 400 million people, the primary driver of consumption expenditure. India’s growing domestic consumption is mainly contributed by the increase in disposable income and the rise in middle-class families. Experts estimate that India’s private consumer market will grow fourfold by 2025. Additionally, the Indian government is focusing on rural areas and farmers, as rural India is also emerging as a promising market for various consumer goods.
Various government initiatives have facilitated India’s investment growth, such as developing the financial system, infrastructure improvement, and relaxing FDI norms. An investor-friendly FDI policy is introduced by the government, allowing most of the sectors to have 100% FDI under the automatic route. India’s FDI policy is also continuously reviewed to maintain its appeal as an attractive destination for investors.
Several countries are looking for new low-cost alternatives for investment to reduce their dependence on China, and India has significant opportunities for them. Countries like Vietnam and Bangladesh have already begun to shift as they have smaller economies and limited labour supply. In contrast, India is a large, populous country with an almost limitless supply of labour. Furthermore, India has a large and expanding domestic market, which is a vital asset at a time when countries are becoming more self-reliant.
In conclusion, India’s status as the fastest-growing economy, combined with its large and growing domestic market, highly skilled workforce, and investor-friendly policies, make it an attractive destination for investments. The country’s GDP growth is expected to drive further growth in investments, presenting an excellent opportunity for investors looking to diversify their portfolios and capitalize on India’s potential. So now is the perfect time to invest in the Indian market and reap the benefits of this dynamic and rapidly expanding economy.