India on track to outpace China as top growth driver

India is poised to surpass China as the leading driver of global growth, according to a report by Barclays. The report highlights India’s significant economic rebound post-pandemic, with the country demonstrating robust growth rates and low inflation despite global economic challenges. This marks a significant turnaround from a decade ago when India was part of the ‘Fragile Five’ economies.

The World Bank supports this positive outlook, maintaining India’s growth forecast at 6.3% for the current fiscal year. This is bolstered by a robust services sector and strong sector-wise growth predictions for agriculture (3.5%), industry (5.7%), and services (7.4%) expected in 2023-24. Additionally, an 8.9% investment growth is anticipated, suggesting a vibrant economic landscape.

Public investment and a renewed focus on traditional sectors are cited as crucial catalysts for this economic rise. To achieve an impressive 8% growth rate, India needs to increase its nominal savings rate to 32.3% of GDP and boost workforce growth from 1% to 3.5% per annum.

The report also notes improvements in commercial banks’ asset quality, with non-performing loans remaining low despite a significant interest rate hike by the Reserve Bank of India (RBI). Improved bank balance sheets and corporate leverage ratios have also contributed to India’s stronger post-pandemic economic rebound.

India’s fiscal consolidation in FY24 could bring down the fiscal deficit from 6.4% to 5.9%, with public debt likely stabilizing at 83% of GDP. Meanwhile, retail inflation is projected to remain high at 5.9%. However, the current account deficit is expected to shrink to 1.4% of GDP.

The report underscores South Asia’s growth at 5.8%, India’s low external debt, and the government’s export ban on most types of rice. It also emphasizes the importance of harnessing public spending to attract private investments for enhanced growth.

The Asian Development Bank (ADB), RBI, and the Organisation for Economic Co-operation and Development (OECD) share this optimistic view of India’s economic prospects, signaling a consensus among prominent global institutions about India’s promising future as a key economic powerhouse.

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