Indian economy’s size to double by FY31, growth to average 6.7%: S&P Global, ETCFO

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Capital accumulation and enhancement in physical and digital infrastructure will drive and sustain Indian economy to average 6.7% growth between FY24 and FY31 and double the size of the economy to $6.7 trillion within the next eight years, S&P Global Ratings stated in its report released on Thursday.

S&P stated that India can capitalise on this moment when the world faces unprecedented transition and uncertainty. It forecasted India’s per capita GDP to increase to $4,500 by FY31. It further pointed that geopolitics can provide potential tailwinds for India’s growth efforts.

“The macro challenge for India in the upcoming decade is to turn traditionally uneven growth into a high and stable trend,” noted Paul Gruenwald, Global chief economist S&P Global Ratings.

“We expect the Indian private sector to gradually increase investments given healthy corporate balance sheets,” S&P Global said, further pointing that growth from productivity contribution will be higher due to the “creation of physical and digital infrastructure in conjunction with efficiency-enhancing reforms.”

The global rating agency expects capital to contribute 53% of India’s average GDP growth, with productivity driving 30% of GDP growth.

Experts noted that India needed to do more in terms of labour force participation federalism and lifting private investment in manufacturing to create conditions for sustained growth.

“India’s path to becoming a more influential global actor will be determined by how effectively it can manage its federalism balancing act and mobilize the participation of grassroots interests,” said Deepa Kumar, Head of Asia-Pacific Country Risk, S&P Global Market Intelligence.

Labour market reforms could help sustain long-term growth, S&P noted, highlighting that average value added per manufacturing employee in India at $8,036 was less than half of Thailand’s and nearly a fourth of Malaysia’s. S&P said that India had the potential to increase its share of global manufacturing exports.

S&P cited the example of the expansion of India’s export industry for telecom equipment, including smartphones, which hit $11.8 billion in FY23.

S&P said that Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh will be India’s top 5 growing states over the coming decade, with Maharashtra inching closer to a $1 trillion economy part by 2030.

“Maharashtra GDP is expected to reach $824.51bn and Tamil Nadu is forecast to reach $650.34bn by 2030,” the report pointed.

However, it was critical of the infrastructure hurdles in India’s urban centres and stated that they were detrimental to India’s growth story.

“In India, the world’s most populous nation, the mobility of 1.4 billion people will be defined in line with improvements in infrastructure, investment, innovation, and inclusivity,” the report pointed.

S&P also argued for a need to improve India’s capital markets.

“Deeper domestic financial markets will facilitate more efficient allocation of investment funds and better pricing of resources, easing implementation of national privatisation, innovation, and sustainability agendas,” noted Jose Perez-Gorozpe, Head of Credit Research, Emerging Markets, at S&P Global Ratings in the report.

The report also focused on India’s net zero journey and stated that there was a shortfall in companies conducting adaptation planning as just 40% conducted physical risk assessments and only a third of large companies rated climate strategy as one of the top three material issues.

  • Published On Aug 3, 2023 at 05:12 PM IST

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