Virendra Pandit
New Delhi: Professor Arvind Panagariya, former Vice-Chairman of NITI Ayog, has said India is on the cusp of returning to a post-Covid high growth trajectory, making it a strong candidate to become the world’s third-largest economy by 2027-28.
The eminent economist, who teaches at Columbia University, USA, said India is already the fifth largest economy worldwide. By 2027-28, it should be the third-largest economy, the media reported on Thursday.
A day before Finance Minister Nirmala Sitharaman presented the Union Budget on Wednesday, the Economic Survey tabled in Parliament pegged India’s GDP growth at 6.5 percent in 2023-24.
The International Monetary Fund’s World Economic Outlook update on Tuesday said growth in India is set to “decline from 6.8 percent in 2022 to 6.1 percent in 2023 before picking up to 6.8 percent in 2024, with resilient domestic demand despite external headwinds.”
Only last week, the United Nations said in its flagship World Economic Situation and Prospects 2023 report that India is projected to grow at 6.7 percent in 2024, making it the fastest-growing major economy in the world.
Prof. Panagariya said that given where India stands currently, it should get back to a 7 percent plus kind of growth rate. India is currently where it was in 2003 when the growth rate picked up to close to about 8 percent and the country sustained that for a few years.
Outlining his reasons for high growth ahead, the economist said several reforms have been implemented and weaknesses in the economy cleaned up during the Covid-19 pandemic. These included non-performing assets (NPAs) of banks and weak balance sheets of many of the big corporates.
Noting that the balance sheets of banks and corporates are now pretty sound, Prof. Panagariya said this is reflected in the investment proposals and commitments many of the large corporates are making.
“We’re seeing this surge in both public and private investments, the fact that policy reforms have happened, lots of infrastructure has been built up. And the fact that there is an effective government in place.
“A government which realizes its strengths and which is I think the reason you don’t see a whole lot of populism in the budget, even though this is the last full budget before the next parliamentary elections, tells you and makes me feel that India is on the cusp of returning to a high growth trajectory,” he said.
India will certainly remain the fastest-growing major economy for several years to come and would maintain about a 7 percent growth rate over these years. If the country takes measures to open up the economy further, particularly on the trade front with liberalization requiring a good bit of knocking down of the customs duties, it could easily grow up to 8 percent.
“The rest of the strengths for achieving this growth are present in the system itself. Some of the ongoing reforms should be implemented, for instance, the labor law reform. If we can do that, I absolutely have no doubt that we would sustain 7 percent and could in principle, I think, touch 8 percent.”
On fiscal consolidation, the debt to GDP ratio had escalated to about 84 percent as it stands currently after the pandemic because expenditures had to be raised at the time and revenues took a hit. It led to very large fiscal deficits, leading to the accumulation of debt, he said. “So we needed to get back to consolidation and the Finance Minister has made a good effort in that direction.”
The revised estimate for 2022-23 for the fiscal deficit is at 6.4 percent and the estimate for 2023-24 is now placed at 5.9 percent.
Prof. Panagariya said the Modi government has successfully implemented infrastructure projects on a scale and at speed.
The government has raised capital expenditure to 3.3 percent of GDP, as against 2.9 percent of GDP this past year.
Finance Minister Nirmala Sitharaman announced hiking the capital expenditure by 33 percent to Rs 10 lakh crore for infrastructure development for 2023-24 which will be at 3.3 percent of the GDP.