How India can achieve high GDP growth in the medium term

There has been some good news on the economic front for India lately. In its World Economic Outlook, the International Monetary Fund stood by its real GDP growth forecast of 9.5 per cent for 2021 and 8.5 per cent for 2022.

On the other hand, the IMF cut its China growth projections for 2021 and 2022 by 10 basis points each – to eight per cent and 5.6 per cent, respectively.

Thus, India looks set to get the tag of the world’s fastest-growing large economy this year and retain it next year.

Keep in mind, however, that while the Chinese economy had grown 2.3 per cent in FY21, the Indian economy had contracted by 7.3 per cent owing to the Covid-19 pandemic.

However, in the short term, the Chinese economy is facing several headwinds.

Amid a struggling property sector facing tighter policy measures and a looming energy crisis, China’s economic growth tumbled more than expected in the third quarter.

As The Economist recently explained, China’s economic growth at present is suffering a “triple shock from energy, property and the pandemic”.

The woes of the indebted Chinese property giant Evergrande are also well known across the world by now.

Another dampener is the fact that the Chinese government has imposed severe restrictions on the country’s tech companies.

Meanwhile, the good news for India continues.

The Reserve Bank of India and Standard and Poor’s have also retained India’s FY22 growth projections at 9.5 per cent.

Then there is the continuing export boom, along with the surge in tax revenue and falling inflation.

The shrinking pile of bad debt burdening the banking system is another bright spot.

Let’s not forget the booming corporate profits, the optimistic industrial production numbers, and the continuing surge in the tally of unicorns.

There are also government programmes like Gati Shakti and asset monetisation, which are expected to generate some momentum.

But, there still are some doubts over whether rapid growth can be sustained in the medium term.

Here’s what we could do.

CONDITIONS FOR HIGHER GROWTH

• Boost consumption demand
• Boost investment demand
• Private sector is constrained at present
• Govt needs to play critical role in boosting investment
• States also need to increase investments

NECESSARY FOR MEDIUM-TERM GROWTH

• How well Centre invests in coming months
• How states manage to use their savings

If the projections for FY22 and FY23 come true, India will once again get to taste the high growth rates of the 2000s. However, a lot needs to be done if that pace is to be sustained going forward.
Source: Global Times