India could grow over 8% if it resolves infra bottlenecks: S&P analyst

GDP growth could be higher

The Indian economy could grow by over 8 percent without overheating if it resolves infrastructural bottlenecks,  YeePharn Phua, Director of sovereign ratings, S&P Global Ratings, said on Wednesday.

“This will help expand the middle class and help attract more investments to the economy,” he highlighted.

S&P Global Ratings expects the Indian economy to grow 7 percent over the medium term. For the current fiscal year, the global rating agency forecasts a growth of 6.8 percent.

“India is recouping some of the lost ground, growing faster than what we had expected four years ago,” said Luis Kuijs, Chief Economist, Asia Pacific, at S&P Global Ratings.

Phua pointed out that a rating upgrade for the economy was contingent upon the general government fiscal deficit falling below 7 percent of the GDP.

“This needs to be largely driven by the central government. Fiscal deficit falling to 4 percent could lead to a rating upgrade over the next 24 months,” Phua noted.

The rating agency had recently upgraded India’s outlook to positive from stable, delivering its first outlook upgrade in a decade.

Phua pointed out that the government must maintain a balancing act in the coming years, as fiscal space for expanding capital space further was tight.

The government had set a fiscal deficit target of 5.1 percent for FY25, targeting a further reduction to 4.5 percent in the next fiscal.

The higher-than-expected surplus transfer from the Reserve Bank of India is expected to provide an additional 0.3-0.4 percent of GDP.

Push on infra

Experts at the conference organised by S&P Global Ratings were hopeful of further expansion in infrastructure investments in the coming years.

“While we did see a bit of volatility post-elections, we expect continuity on infra investment. The sector could grow at a compounded annual growth rate (CAGR) of 12-15 percent to $1.5 trillion, which will help build capacity,” said Anjan Agarwal, Head, Debt Capital Markets, India, Schroders.

Agarwal pointed out to airports, renewable energy and national highways attracting capex.

“We will see a significant amount of capex in sectors. A lot of capacity will build up over the next five years,” Agarwal noted, also highlighting that there were enough opportunities for non-infrastructure spending in sectors like tourism.

Rise of consumer spending

Infrastructure spending has also fed into a consumption spurt, said Neel Gopalakrishnan, Director, Corporate Ratings, S&P Global Ratings.

“We are beginning to see spending evolve. Average spending is $80 per month in urban areas, and there is a lot more potential,” said Gopalakrishnan, pointing to sectors like telecom and airports, which have shown this trend.

India recently released results of the household consumption survey, which show that Indians made over half their expenditure on non-food items.

While Gopalakrishnan noted that consumer spending was a good story, the gains from supply chain diversification were a longer-term play.

“This will be a slower and longer-term story; the investments needed are huge. The initial focus is to secure supplies for production happening in India. There is no intention to make India a hub for large-scale exports,” he pointed out.

Leveraging global changes

Experts noted that India has been able to take advantage of global changes.

“Historically, India has taken a more neutral stance, but in the last few years, India has changed its stance, which feeds into a virtuous cycle of growth. If India is able to maintain its stance, it will continue to reap benefits in the future,” said  Shilpa Singhal, Senior Fund Manager, Asian Credit, Schroders.

In an event earlier this week, IMF Chief Economist Pierre-Olivier Gourinchas noted that India stands to gain from geopolitical fragmentation if it stays non-aligned.