India’s Economic Rise: Path to Inclusive Prosperity

India’s remarkable economic growth trajectory has positioned it as the fastest-growing major economy globally and on track to be among the top three economic powers in the next decade or so. This ascent is underpinned by India’s robust democracy and strong international partnerships, making it an increasingly attractive destination for investments. Amid global unpredictability and volatility, investors have shown confidence in India’s growth story, as evidenced by the significant capital raised by India-focused funds in 2022.  In the first quarter of FY23, India’s resilient economic performance enabled it to surpass the United Kingdom and become the world’s fifth-largest economy, rebounding from the challenges posed by the COVID-19 pandemic. The nominal GDP for the fiscal year 2023-24 is estimated at Rs. 295.36 lakh crores (US$ 3.54 trillion), marking a growth rate of 9.6% compared to the previous fiscal year which had seen a growth rate of 14.2%. This growth has been largely driven by strong domestic demand for both consumption and investment, bolstered by the government’s sustained focus on capital expenditure. India’s economic landscape reflects a promising outlook characterized by steady growth, resilient domestic demand, and a flourishing export sector. The country’s strategic emphasis on capital expenditure and continued efforts to boost both investment and consumption signal a positive trajectory for its economy. As India solidifies its position as a global economic powerhouse, the dynamics of its growth story are set to reshape the international economic landscape.

In 2023, India achieved a significant milestone by assuming the presidency of the G20, a prominent global economic forum, showcasing its economic strength and diplomatic acumen on the world stage. Through its emphasis on a rules-based international order, advocacy for collaborative problem-solving, and unwavering commitment to democratic values, India has emerged as a stabilizing force in an increasingly intricate global geopolitical landscape. India’s leadership has also played a pivotal role in ushering in a new era of multilateralism, where developing nations play a crucial role in shaping the global agenda by integrating the concerns of the Global South into international discussions. India’s tenure was marked by notable achievements, including the admission of the African Union into the G20, the establishment of important multi-stakeholder partnerships such as the Global Biofuel Alliance and the Global Initiative on Digital Health, significant progress on the United Nations Sustainable Development Goals (SDGs), reforms in multilateral development banks, and advancements in digital public infrastructure. These accomplishments signify India’s competence in fostering consensus to collectively and effectively address global challenges.

The World Economic Forum, through its various initiatives and centers, actively supported India’s G20 agenda and made substantial contributions to key thematic areas such as energy and health. Economically, India has been a crucial driving force for global growth, contributing 16% to the worldwide growth in 2023. With a growth rate of 7.2% in fiscal 2022-2023, India’s economic expansion was the second-highest among G20 countries, nearly doubling the average growth rate for emerging market economies during that period. India’s steadfast efforts to maintain stability and implement structural reforms have bolstered its economic resilience in the face of global challenges. India’s investments in enhancing infrastructure and connectivity, exemplified by initiatives like the Bharatmala highway program, the Sagarmala project for port-led development, and the Smart Cities Mission, are reshaping the country’s landscape and playing a pivotal role in its economic progress. India embarked on laying a robust groundwork for a more digital economy over a decade ago with the launch of its national identification program, Aadhaar, which utilizes biometric IDs to establish residency proof. Today, with a burgeoning tech industry, the nation has become a significant hub for innovation and technology services, not only propelling economic growth but also solidifying its position as a key influencer in shaping the future of the digital economy. Private consumption growth remained constrained at 4.03% during fiscal 2023 to 2024 due to modest expansion in the agriculture sector and persistent inflation, which dampened rural demand. On the other hand, Indian exports witnessed a notable 8.1% year-on-year surge in the fourth quarter, marking the highest growth for that fiscal year. Despite an annual contraction in merchandise export growth, the fourth quarter saw remarkable improvement in merchandise exports, particularly in high-value manufactured goods such as pharmaceuticals, chemicals, engineering products, and electronics. This upward trajectory indicates promising prospects for India as it endeavors to enhance its integration into the global value chain and elevate its exports to US$2 trillion in the next six years.  

The sentiment in the nation is optimistic, with the surge in stock markets also benefiting the middle class. The economic vision of the ruling Bharatiya Janata Party (BJP), known as “Modinomics,” seems to be yielding positive results. According to Debroy, the Chairman of the Prime Minister’s Economic Advisory Council, the government is dedicated to investing in crucial projects, particularly those aimed at stimulating investment and consumption in urban and rural areas. For the calendar year 2024, Debroy anticipates a robust growth rate of 7%, despite some global market uncertainties. A more conservative estimate suggests a growth rate closer to 6.8%, but India appears to be on a promising trajectory. The country’s total economic output, which stood at around $3.7 trillion in 2023, is projected to reach an impressive $4 trillion in 2024. Achieving this milestone is viewed as a significant step towards India’s goal of transitioning into a “developed” country by 2047, as predicted by Debroy. The International Monetary Fund (IMF) has upgraded its forecast for India’s FY24 growth to 7.8%, exceeding the government’s projection of 7.6%. The IMF’s report emphasizes that India, alongside the Philippines, has continuously delivered positive growth surprises, driven by resilient domestic demand. This recognition from the IMF further solidifies India’s position as a key player in the global economic landscape and highlights the country’s potential for sustained growth and development in the coming years.  

India’s economy thrives on consumer demand, with private consumption contributing over 60% to the GDP, making its sustained growth pivotal. To ensure broad-based growth, it’s imperative to address the significant disparities in consumer spending between urban and rural areas. The government needs to focus on reducing this gap across various states by enhancing access to resources and bolstering support for agricultural income. There is notable variation in household spending on health and education among different states in India. Higher spending on health can strain consumers’ discretionary spending power, potentially pushing more households below the poverty line. States with a higher share of household spending on health will need to boost public spending to alleviate this financial burden. On the other hand, some states exhibit lower household spending on education, which could lead to disparities in educational opportunities and outcomes. It is crucial for these states to implement targeted interventions to enhance the quality of education and address educational inflation. The impact of cumulative inflation and poor agricultural output has been particularly pronounced on rural consumers, necessitating efforts to improve affordability and create more employment opportunities. The government’s recently introduced budget, after elections on July 23, 2024, focuses on enhancing agricultural productivity and income, generating employment for the youth, fostering manufacturing, and addressing the longstanding challenge of access to finance for micro, small, and medium enterprises. These policy shifts are expected to directly bolster supply, mitigate inflation, and stimulate consumer spending, especially in rural areas and among the middle class. Overall, these measures are anticipated to bridge the urban and rural spending gap, leading to sustained growth in private consumption from a larger consumer base. Thus, it is believed that the government’s policy initiatives will effectively tackle the aforementioned challenges, ultimately resulting in a diminished urban-rural spending disparity and sustained growth in overall private consumption spending.