India’s growth a global standout with China slowing and US recession still likely

The implication is that the world will lean heavily on India to pull the global economy in an uncertain period.

On the face of it a 6.3-6.5 percent growth for the Indian economy during 2023 to 2026 may appear, as the World Bank has projected, a tad disappointing. For a country that has got used to galloping at 8-9 percent, many would consider a sub-7 percent growth in real or inflation-adjusted gross domestic product (GDP), other things remaining the same, sub-par.

But, in 2023 and for a couple of years beyond, a 6 percent plus growth rate would rank any economy among the top-tiers in the growth sweepstakes.

Why Six Percent Growth Is Noteworthy

Sample this.

The US is projected to grow 1.1 percent in 2023, slowing to 0.8 percent in 2024 before picking up to 2.3 percent in 2025.

The Euro area, according to World Bank’s June projections, will grow 0.4 percent this year, followed by 1.3 percent in 2024 and 2.3 percent in 2025. Japan’s growth will likely remain flat at 0.8 percent this year, 0.7 percent in 2024 and 0.6 percent in 2025.

Closer home, the World Bank has cut its growth forecast for China into next year amid a looming property crisis whose effects could cascade through the region, dragging down growth in the east Asia region.

China's GDP growth is now pegged at 4.4 percent for 2024, implying that the world’s second largest economy has significant catching up to do before it comes within striking distance of its sizzling growth records during the first decade of this century. For this year, the World Bank has projected that the Chinese economy will likely expand at 5.1 percent.

"China's past growth, largely driven by investment in infrastructure and property, has left firms and local governments burdened by debt – as saturated infrastructure yields diminishing returns and an oversupply of housing reduces property prices," the report noted.

World Bank Bullish On India

This, effectively, implies that the world will lean heavily on India to pull the global economy in an uncertain period. India stands out as a beacon of hope. India, now the world’s fifth largest economy, will remain one of the major engines of global growth over the medium term, emblematic of the economy's resilience, as well as its ability to manage the transition from the rough and tumble of a worldwide slide.

What makes the World Bank so bullish about India’s prospects? There are a few clues, and cues, in the report.

Despite significant global challenges, India was one of the fastest-growing major economies in 2022-23 at 7.2 percent. India’s growth rate was the second highest among G20 countries and almost twice the average for emerging market economies.

A large part of the cheerfulness draws from the government’s policy of focusing on capital expenditure, relying heavily on the textbook assumption that higher public (read government) investment in infrastructure projects will unleash strong economic multipliers.

By definition, the resultant impact of infrastructure projects always shows up with a time lag. Highways and ports are long gestation projects, but can spin jobs, with cascading benefits on intermediate industries such as cement and steel.

The government’s decision to do the heavy lifting on capital expenditure appears to be a part of the well-crafted medium-term strategy to not just accelerate the pace of infrastructure project execution, but also to trigger a cycle of private sector investment, or what economists sometimes describe as the “crowding in” phenomenon.

This line of thinking found echoes in the World Bank’s argument as well. “This resilience was underpinned by robust domestic demand, strong public infrastructure investment and a strengthening financial sector. Bank credit growth increased to 15.8 percent in the first quarter of 2023-24 compared with 13.3 percent in the first quarter of 2022-23,” the World Bank said in its latest report.

Consumption Expenditure Set For Rebound

Consumption spending, which has always been the major growth engine for the Indian economy and seemed to be plateauing out a bit, is set for a rebound. The World Bank numbers have a few pointers.

Real growth in private consumption is set to grow 5.9 percent this year, 6 percent in 2024-25 and 6.4 percent in 2025-26, according to the World Bank. This is a happy augury, particularly when compared with last year.

Official statistics showed that private final consumption expenditure (PFCE), a marker to gauge how households have spent on buying goods and services, had stagnated significantly during the fourth quarter (January-March) 2022-23. At constant 2011-12 prices, PFCE during the quarter stood at Rs 23,99,515 crore up 2.8 percent compared to Rs 23,33,501 crore during the same quarter in the previous year.  High interest rates and relatively higher inflation may have dampened consumer confidence.

That trend seems to have turned. Even anecdotal evidence about household spending suggests a bullish upward march. Car sales in India reached record highs in September, driven by strong consumer demand during the festive season coupled with the rollouts of new Sports Utility Vehicles (SUVs). Industry analysts reckon that carmakers dispatched around 3,63,733 units in September, the highest ever monthly sales in the history of the domestic passenger vehicle (PV) market.

Amid persistent anxiety about why a US recession is still likely — and coming soon, it could well be spending by millions of Indian households and the infrastructure projects that the world could depend upon to pull the global economy out of a piling rubble.

Gaurav Choudhury is consulting editor, Network 18. Views are personal, and do not represent the stand of this publication.