Virendra Pandit
New Delhi: India, a major middle-income economy, has done so well that many see it as a country outperforming and emerging as the “third pole.”
If any major middle-income country is truly outperforming in the coming decades, it’s the world’s soon-to-be third largest economy (and its largest democracy), India, Eurasia Group said in a report.
“In my view, 2023 will be remembered for India’s emergence as the third pole of the world,”, said Shigesaburo Okumura, Editor-in-Chief of Nikkei Asia, in a recent article.
Also, this year will likely be remembered for marking India’s emergence as the world’s most populous nation, Okumura remarked.
According to the United Nations, China’s population in 2022 was 1.426 billion while India’s was 1.417 billion. In July 2022, the UN forecasted that China’s population would fall in 2023 while India’s would surpass it. By 2050, the UN expects India will have a headcount of 1.6 billion and China 1.3 billion.
Noting that a growing working-age population is an important source of economic growth, Okumura said India’s emergence on this count will give it new power in international politics.
Also, a growing decoupling between the US and China and the rebuilding of technology supply chains to exclude China will benefit India where Apple is building the iPhone 14s now.
This year, India is chairing the Group of 20, a role that will involve a Leaders’ Summit in September 2023 and many ministerial meetings until then. The Modi government will show leadership ahead of India’s own elections in 2024, he said.
“The new year thus could mark the beginning of a tripolar world, involving the US, China, and India. New Delhi is undeniably on the rise,” Okumura said.
Challenges, however, are mounting for India’s economy with the GDP forecast at a half-century low.
Motilal Oswal Financial Services forecast that after growing strongly for two consecutive years, India’s real GDP growth would decelerate to 5.2 percent YoY in FY24, while nominal GDP growth would weaken even more sharply to 7-7.5 percent, led by easing inflation.
A combination of factors such as a slower global economy, fading pent-up demand, and normalizing base effects would contribute to slower real growth.
“Overall, we believe that, unlike the past 12-15 months, the narrative will reverse in FY24. Inflation concerns will take a back seat and growth worries will resurface. This may be true not only for India but also for the entire global economy. At the same time, restrictive monetary policy will fail to boost financial markets. Accordingly, CY23 could be very painful,” the report said.
As central banks worldwide simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies that would do them lasting harm, according to a World Bank study in September 2022.
The global economy is now in its steepest slowdown following a post-recession recovery since 1970. The three largest economies — United States, China, and the Eurozone — have been slowing sharply.
India’s current account deficit (CAD) expectedly swelled to a 37-quarter high of USD 36.4 billion (4.4 percent of GDP) in Q2 FY23 from USD 18.2 billion in Q1 FY23 (2.2 percent of GDP). The resulting net balance of payments (BoP) position registered a deficit of USD 30.4 billion (3.7 percent of GDP), its weakest since the 2008 global financial crisis, compared to a surplus of USD 4.6 billion in Q1 FY23, Acuite Ratings said.
The Indian economy has been supported by sturdy domestic demand as indicated in GST collections and consumer spending.
However, the industrial output contracted by 4 percent YoY in October, the worst in over two years, hobbled by the drop in orders from western markets and weak investment at home.
“In our assessment,” the Standard Chartered Bank noted, “India’s growth-inflation dynamics is stable and better than its peers” it added.
The post-pandemic economic recovery cycle remains strong amid supportive government policies and a pick-up in investments. Further, the likely broadening of the rural economy’s recovery and of the service sectors is a strong tailwind, it added.