 "'Omens good', India can grow 6.5-7% in the next decade: CEA Nageswaran")
India could continue to grow at a rate of 6.5-7 per cent for the next decade with better balance sheet strength in the financial and non-financial sectors, Chief Economic Advisor (CEA) V Anantha Nageswaran said on Wednesday.
Speaking at an event organised by the National Council of Applied Economic Research (NCAER), Nageswaran said, “As we go into the rest of the decade beyond FY25, the omens are good for us to continue the steady growth rate between 6.5 and 7 per cent.”
The CEA said that looking at the trajectory of growth in the first three quarters of FY24, the possibility of the growth rate touching 8 per cent is quite high.
For FY24, the International Monetary Fund (IMF) has raised India’s gross domestic product (GDP) growth projection to 7.8 per cent compared to 6.7 per cent in its January report.
Nageswaran said the economy is better placed than before to pursue a non-inflationary growth as the country is well within the Reserve Bank of India’s (RBI’s) reference range for inflation.
He said that inflation should head to the middle point of the target range and settle around 4 per cent subject to monsoon.
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“We don't see the scope for nasty upside surprises at this point.
There can always be scenarios in geopolitics that can cause inflation to be more than what we expect. But at this point, our baseline scenario is that inflation will converge towards the midpoint of the target range,” the CEA added.
Nageswaran also said that there are signs of an uptick in private sector investment with the corporate sector’s savings minus investment showing a surplus.
He added, “This surplus is shrinking, which means that they are investing.”
He also said that in order to maintain the growth momentum, especially for micro, small and medium enterprises (MSMEs), there is a need to focus on reducing compliance burden for businesses and invest in skilling young people.
Speaking at the event, Auguste Jouame, country director, IMF, said its growth forecast for FY24 and FY25 would be updated soon and is likely to be upgraded for India.
He said when the world economy picks up and the global environment becomes more conducive, it would add to India’s growth. It could probably reach 8 per cent.
“If and when India grows at 8 per cent, it will create inflationary pressures. If you grow above potential, it sounds like you are doing well, but it is not good from a macro point of view. The question is as we hope to see faster growth, what can we do to grow the potential growth,” Kouame said.
Typical shocks that impacted India’s GDP growth in the past now matter less, such as political and policy uncertainty, sharp increase in oil prices and deficient rainfall, among others, Poonam Gupta, director general, NCAER, said.
“India has become more decoupled from the quality of rainfall. Financial sector is stable. Every unit of GDP we produce, we need less oil with the economy shifting towards services and energy efficiency improving and shift towards renewables…Indian economy has attained growth with resilience and macroeconomic stability,” Gupta said.
She said the Indian economy can withstand an increase in oil prices better than in the past and any level of oil price below $100 is eminently manageable.
“Macroeconomic stability is hard won. It ought to be and will likely be maintained,” Gupta said.
Gupta said the GDP growth numbers are translating into faster per capital income growth numbers. “A slowing population growth rate has resulted in sharper acceleration in per capital income growth.”
Gupta also said that whether India can look at expanding its current account deficit a little by financing it through foreign direct investment (FDI) is an important policy issue which needs to be looked into.
“FDI brings finances, technology and access to markets. If you look at other fast-growing emerging markets, FDI has been a very important part of their growth journey,” she added.