Why Moneycontrol is bullish on India

The export-dependent East Asian nations have been hit by the slowdown in global trade. Developed nations have seen inflation shoot up. Yet India has regained the ‘world’s fastest-growing major economy’ tag.

In the last three years, the Indian economy has had to cope with the Covid pandemic, lockdowns, the war in Ukraine, geopolitical stresses and strains, soaring commodity prices, a global supply crunch, high inflation, monetary tightening by economies across the globe, a slowdown in trade and financial outflows, and it has not just weathered these crises, but has emerged stronger. That is an important reason to be bullish on India—if we have been able to emerge triumphant from this ordeal, should we not do even better now that normalcy is on the horizon?

Several economies have wilted under the strain, including those in our neighbourhood. Chinese growth, once the envy of the world, is sputtering. The export-dependent East Asian nations have been hit by the slowdown in global trade. Developed nations have seen inflation shoot up. Yet India has regained the ‘world’s fastest-growing major economy’ tag. And this has been achieved with relatively modest levels of government debt, as well as low corporate and household debt, unlike many other economies.

It is likely to get even better. Banks have cleaned up their bad loans and their balance sheets are in great shape, allowing them to lend. Companies have also deleveraged and their debt-equity ratios are now comfortable, enabling them to borrow for capital expenditure and expansion. Gross fixed capital formation as a proportion of GDP in the January-March 2023 quarter was the highest in more than a decade. All the conditions are in place for an investment boom, adding another engine to drive the economy.

Moneycontrol is bringing to you a special series to capture India's rising economic might, as it emerges stronger from the pandemic amid a sluggish world economy. Find out more.

Bullish on India

But it’s not just a cyclical turnaround that makes Moneycontrol bullish on India. Many decades ago, the economist Paul Rosenstein-Rodan, one of the pioneers of development theory, said, “Launching a country into self-sustaining growth is a little like getting an airplane off the ground. There is a critical ground speed which must be passed before the craft can become airborne.”

The Indian economy has attained that critical speed and is poised for take-off. India is now the world’s third-largest automobile market, the fourth-largest in solar power generation, the second-largest mobile phone manufacturer, the second-largest steel producer, the third-largest producer of pharmaceuticals by volume, and it continues to lead the world in ICT services exports. The list could go on and on. The world’s venture capital firms have been beating a path to our door, as has foreign direct and portfolio investment. By 2027, according to IMF projections, India will be the third-largest economy in the world, behind only the US and China.

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A recent cover of The Economist magazine has the strapline: ‘Why India is indispensable’, an indication of India's arrival on the world stage.

Admittedly, one reason for India rising is the disenchantment of the West with China. The geopolitical winds now favour India, just as they favoured Japan and Taiwan and South Korea during the Cold War, and China in the nineties and noughties. The West is wooing India not just for its economic promise, but also for its military clout, situated as it is on the frontlines of the geopolitical divide. Businesses too are rapidly reconfiguring their supply chains and diversifying them away from China. India has already benefited from this trend.

But if the geopolitical wind is in India’s sails, the Indian government has worked hard to be in a position to take advantage of the opportunity. There has been a slew of reforms initiated by the government. The introduction of the GST, the bankruptcy law, lowering corporate taxes, the moves towards formalisation of the economy, initiatives to reform labour laws, allowing contract labour in all industries and the laser-like focus on building infrastructure are some of them. The Production-Linked Incentive scheme has boosted manufacturing in India, aided by import tariffs. Inflation-targeting and the introduction of an independent Monetary Policy Committee have helped keep inflation in check, as have government policies. Privatisation is a work in progress, and it will increase efficiency in the economy. The groundwork has been laid for a big push in foreign and domestic investment. As the saying goes, “If you build it, they will come.”

India is also blessed with a strong footprint in science and technology. Covid-19 showcased India’s strengths in manufacturing vaccines. India has emerged as a global leader in digital payments, and we are lending our expertise to other countries. Our achievements in space technology need no recounting.

And then we have the biggest tailwind of all in our favour—demography. While much of the world turns old and grey, India will remain youthful. India’s dependency ratio, which measures the non-working-age dependent population as a proportion of the total population, will rise only slightly from 47.5 percent in 2022 to 49.3 percent by 2050. In sharp contrast, in 2050, this ratio will be a high 71.1 percent for China, 64.6 percent for the US and a sky-high 94.7 percent for Japan. A lower proportion of dependents in India will mean more resources can be devoted to growth.

It is no wonder then that a State of the Economy report in the RBI Bulletin, authored by researchers at the central bank, said: “India is poised to sustain a growth differential vis-a-vis the rest of the world on the basis of several fundamental factors.” Those factors include a demographic dividend, expansion in the availability of capital thanks to increasing formalisation of the economy as well as digital financial inclusion, the financialisation of savings as retail participation in capital markets grows, and a sound banking system with strong balance sheets. The report concludes: “India’s time has arrived. We must seize the initiative with both hands.”

To be sure, there is much hard work still to be done. Structural reforms in the power sector, for instance, are essential, as is timely dispensation of justice. We need to cut red tape and combat corruption. Development is by no means a painless process and there will be struggles over sharing its benefits and bearing its costs, struggles that have to be managed politically. It is here that India’s vibrant democracy comes in handy, as it helps defuse these tensions.

The demographic dividend can be encashed only if we find decent jobs for the millions joining the labour force, and when women join the workforce in far greater numbers. It is imperative to raise productivity by getting people out of handkerchief-sized farms into more productive jobs. The formal sector needs to expand substantially. But growth can cure many ills and we now have a once-in-a-generation opportunity to move to a higher growth trajectory.

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Perhaps, most importantly, optimism is in the air and spirits are high. There is a spring in the step, a new-found confidence in India. To take just one instance, the recent record orders for commercial aircraft by Indigo and Air India are a huge vote of confidence in the long-term prospects of the country’s aviation sector and of the economy.

The nation has found its voice, its purpose and its stride. This has nothing to do with jingoism or triumphalism. All it means is that the one sixth of humanity that calls India home can look forward to rapidly improving its standard of living and claiming its rightful place in the world. That is why Moneycontrol is bullish on India.