JULY 17, 2023

By TIOL Edit Team

INDIA's robust economic recovery after the Covid pandemic has revived global crystal-ball gazing about its exciting prospects over the medium & long term. The Centre and the States need to capitalize on the turnaround & global studies to accelerate growth in gross domestic product (GDP) on sustained basis.

The promising scenario over the horizon can be acknowledged by looking at valuable inputs spread over recent documents released by the Finance Ministry (FinMin), Reserve Bank of India (RBI), Goldman Sachs, Morgan Stanley, Deutsche Bank & other entities.

According to FinMin's Annual Economic Review 2022-23 (AER), released this month, "India appears poised to sustain its growth in a more durable way than before. Nonetheless, it is no time to rest on laurels nor risk diluting the painstakingly and consciously achieved economic stability. If we are patient, the rising tide will lift all boats as it has begun to."

AER has aptly stated: "fiscal prudence can be fiscal stimulus through its impact on credit rating and lower cost of borrowing ." This sage advice should be kept in mind by all political parties that are flexing muscle on the freebies turf. It is a high-stakes game of offering promises/guarantees to woo vote banks for 2024 Lok Sabha polls & upcoming assembly elections in certain States.

We urge the respective ruling parties at the Centre & poll-bound States to exercise restraint in matching the generous welfare promises that the Opposition parties are making or would make to the voters in coming months.

It is here apt to mention fiscal caution by an RBI study against States reverting to the old pension scheme. The RBI's annual Study/report on State Finances for 2022-23 says: "A major risk looming large on the sub-national fiscal horizon is the likely reversion to the old pension scheme by some States. The annual saving in fiscal resources that this move entails is short-lived. By postponing the current expenses to the future, States risk the accumulation of unfunded pension liabilities in the coming years ."

The Study's another suggestion that deserves serious consideration by all States pertains to capital expenditure. It suggests: "States must mainstream capital planning rather than treating them as residuals and first stops for cutbacks in order to meet budgetary targets. In this context, it is worthwhile to consider creating a capex buffer fund during good times when revenue flows are strong so as to smoothen and maintain expenditure quality and flows through the economic cycle ."

Such a Buffer/Cushion Fund is also required at the Centre for stability in prices of petroleum products, liquefied natural gas (LNG) and coal to cushion the impact of global volatility in energy markets. More such similar initiatives can be thought of to minimise disruption in growth momentum.

The three tiers of the government at Centre, States and Local governance ought to act in unison for optimizing capital investments to speed up growth and maximise work opportunities. They should remove all hurdles in the golden path for India from 2027 to 2075 as visualized by certain global financial services giants.

In an article captioned ‘ India's Impending Economic Boom ' published during November 2022, Morgan Stanley (MS) observes: "India is on track to become the world's third largest economy by 2027, surpassing Japan and Germany, and have the third largest stock market by 2030, thanks to global trends and key investments the country has made in technology and energy ."

This is based on its study titled ‘Why This Is India's Decade' published on 31 st Oct 2022.

Like MS, Deutsche Bank's Chief Investment Office has also shared feel-good vibes in a Note dated 1 March 2023. Captioned‘ India: why it will be a USD 7 trillion economy by 2030 ', the Note says: "India's GDP is set to double over the next seven years, aided by several inherent demographic advantages and policy-led changes ."

The Note adds: "India's growth story is at a turning point. It is uniquely positioned among major economies with its large and growing middle class and a young working-age population. There exist some notable similarities between China of 2007 and India of today in terms of working-age population or per capita GDP ."

The icing on expanding India's growth cake has been served by Goldman Sachs' report titled ‘ The Path to 2075 - Slower Global Growth, But Convergence Remains Intact .'

Dated 6th December 2022, the report contains growth projections for 104 countries up to 2075. It projects India as the world's 3rd largest economy in 2050 and the world's second largest in 2075.

The Report foresees China and India becoming larger than the US by 2075. The US will, however, remain more than twice as rich as both the countries.

It says: "If we extend the projection horizon to 2075, the world's three largest economies are China, India and the US, with India (just) overtaking the US."

The three growth projections reported cited above should serve as a booster dose for good governance & fiscal prudence at all three tiers of Government.

We urge all political parties to keep politics out of economic growth. We should all strive to make India as the most powerful locomotive for global economy.