Current Growth Factors Cushioning India's $ 5 Trillion Economy Ambitions

Current Growth Factors Cushioning India's $ 5 Trillion Economy Ambitions



We are always proud of our country. But when the $5 Trillion economy goal was first proposed in 2019, it felt like a far-off daydream. Currently, India is eager to accomplish it despite adversity like never before. The economy has become the fifth largest in the world. India's GDP is currently at almost $3.5 trillion. There are probably some speed bumps on the road ahead. The International Monetary Fund (IMF) has lowered its earlier expectation of 7.4 percent for India's GDP growth in fiscal 2023 to 6.8 percent. Several international organizations, including the World Bank and the OECD, have also revised their growth forecasts. However, the government's Chief Economic Advisor (CEA), V Anantha Nageswaran, recently reiterated the potential of India to become a $5 trillion economy by 2025 and $7 trillion by 2030.

Factors Influencing Growth

The pandemic significantly hurt both the Indian and global economies. Many challenges continued even after the world recovered from this disaster. There are still some supply chain constraints present. Rising inflation is a result of the developed economies' cash distribution to households during the pandemic. Additionally, the Russia-Ukraine war has made the conditions worse.

The Federal Reserve's aggressive interest rate increases threaten US economic growth, which could have repercussions for India. Given that India purchases oil and other imports in this currency, the impact of the dollar's rise is amplified. The energy crisis in the EU also works as a dampener for growth. Because of the government's zero-Covid policy, China, which was formerly expected to drive global economic growth, has continued to announce limits.

Despite these problems, India has demonstrated resilience. Many factors are in its favor at the moment.

Strong Relationships and a Diversified Economy: For the past 50 years, India's economy has grown steadily. The economy is broadly diversified and has productive trade ties with other nations.

Adoption of New Technologies: India is eager to absorb new technologies. The adoption rate has increased in the manufacturing and finance industries. This increased output while lowering production costs and raising production quality. These variables boosted profitability, which led to higher investments in innovation.

Offshoring Opportunity: Covid-19 sparked a long-term movement towards remote teams in the workplace ethos. This benefits India because it is more affordable for corporations from developed countries to collaborate with Indian citizens.

Young Population: With 356 million young people, India has the greatest youth population in the world. With a working population of 64 percent, India has a growing economy, per capita income, and a sizable client base that businesses can successfully target.

Renewable Energy: India's installed electrical capacity already derives about 40 percent of its power from non-fossil fuel sources. This shift to renewable energy cuts prices for consumers and companies while reducing import dependency in the nation.

According to many experts, India is best positioned to weather the economic headwinds predicted for the world in 2023. Despite reduced growth estimates, India is still expected to have the fastest-growing economy in 2023 and will continue to move closer confidently to the $5 trillion goal.

Key Trends Critical to Shaping & Cushioning the Fall in the Near Future 

MSMEs play a crucial role in bolstering the country's economy by working together to promote and broaden the adoption of the Made in India label both domestically and internationally, double the size of micro industries within the next five years, and foster high-growth businesses. MSMEs, which account for 63 million businesses and 111 million employees nationwide, produce around 45 percent of the nation's manufacturing output and 40 percent of its overall exports. In order to capitalize on the enormous opportunity in the sector, the Union Budget 2023 increased budgetary allocations, pledged emergency credit line programs and long-term credit outlays, and the potential for ongoing stimulus. Concentrating on this can spur growth and provide protection against anticipated economic tremors.

The New Labour Code, which pledges to simplify the terms of regulation, lower costs of compliance for MSMEs below the minimum threshold, and a uniform minimum floor pay for workers across small and medium-sized firms and the unorganized sector, further strengthens these requirements. As a result, while small enterprises have been given room to grow, all forms of employee rights have also received sufficient legal protection. While the final adjustments are being made, a wide range of sustainable opportunities should become available for what is anticipated to develop into a booming economy with 23.5 million independent workers by 2029–2030, helping India prosper into a nurturing country for all of its entrepreneurial citizens.

Yet, one of the main problems MSME encounters is payment delay, a problem that is constantly brought up. According to an estimate, six percent of India's GVA (Gross Value Added) for FY 2020–21 is still unpaid to MSMEs in India, or over Rs 10.7 lakh billion. Less than one percent of eligible businesses, or 1.3 percent of the pool of delayed payments, use the MSME Samadhan portal to formally report delays under current mechanisms involving informal follow-ups.

The majority of Europe, the US, and Japan have rules to prevent delayed payments and promote fast payments, and we may benefit from some of their guiding principles. In the end, what is needed is a transparent, paperless, end-to-end system to facilitate timely payment, which will not only inject liquidity into the market but also prompt businesses to reinvest. This is because the government places a lot of emphasis on supporting MSMEs as the growth driver of India's economy.


Increased Social Sector Budgetary Allocations

The social sector may help the economy recover and grow. Yet, the recent yearly budgets have not sufficiently highlighted the urgent need to concentrate on social indices. Budget 2023–24 and later will be opportunities to remedy this, with only 1.4 percent of GDP spent on social protection compared to an average of 2.5 percent by low-middle income nations. SEBI's latest framework on an imagined 'Social Stock Market' further offers the opportunity for higher cash flow and investment opportunities in the sector. The new avenues could spur advancement where the social sector could play a significant role as talks about gender and climate budgets gain traction.