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Can India achieve its $5 trillion dream?

The country is expected to remain a growth outperformer in the medium term with an average GDP growth of 6.6% between fiscals 2024 and 2026, versus 3.1% globally as estimated by IMF.

Can India achieve its $5 trillion dream?
India will still be the second-fastest growing economy in G20 in FY23 after Saudi Arabia as per OECD.

By Ashwajit Singh

Centre’s recent forecast on India’s economic growth slowing down to 6.5% in the current fiscal may make the catch up to pre-pandemic level more elusive. Attributing the drop to the tightening global monetary policy, spill overs from the Russia-Ukraine war, India is already feeling the heat with a slowdown in exports, industrial activity and soaring inflation. In line with the World Bank projections for FY23, even the IMF slashed India’s growth forecast to 6.8% last month from the earlier 7.4%.

Amidst all this, India will still be the second-fastest growing economy in G20 in FY23 after Saudi Arabia as per OECD. With domestic demand expected to drive growth in the medium term, India hopes to benefit from China-plus-one policy as global supply chains get reconfigured. The country is expected to remain a growth outperformer in the medium term with an average GDP growth of 6.6% between fiscals 2024 and 2026, versus 3.1% globally as estimated by IMF.

Five key trends critical to shaping & cushioning the fall in the near future could be:

More focus on MSMEs

With a collective attempt to popularise and increase acceptance for the ‘Made in India’ tag within the country and globally; double micro industries in the next five years and groom high growth industries, MSMEs play a pivotal role in contributing to the national economy. Home to 63 million enterprises employing about 111 million people, MSMEs contribute about 45% of manufacturing outputs and 40% of total exports in the country. The Union Budget 2022 recognised the huge opportunity in the sector by providing impetus through doubled budgetary allocations that promised emergency credit line schemes, long term credit outlays and scope for continuous stimulus. Focus on this has the potential to drive growth and cushion against expected economic tremors.

These stipulations have been further enhanced in the New Labour Code which promises low costs of compliance for MSMEs below the minimum threshold, simplifying the terms of regulation, while also promising a uniform minimum floor wage for workers across small and medium-sized businesses and the unorganised sector. Thus, while small businesses have been given the space to expand, right of all type of workers has also been given adequate legal cover. While the fine tuning is still being done, one can expect plethora of sustainable opportunities to open up for what is estimated to grow into a booming economy of 23.5 million independent workers by 2029-30, and help India prosper into a nurturing nation for all its enterprising people.

However, one of the biggest challenges that MSME faces relates to delay in payments – something that continues to be highlighted. An estimate indicates that approximately Rs 10.7 lakh crore is stuck as delayed payments to MSMEs in India, amounting to 6% of India’s GVA (Gross Value Added) for FY 2020-21. The current mechanisms involve informal follow-ups, with less than 1% of the eligible enterprises, representing only 1.3% of the delayed payments pool, using the MSME Samadhaan portal for formally recording delays. Most of Europe, the US, Japan have laws to check delayed payments and encourage prompt payments and we could learn through some of the best practices from these nations. Ultimately, given the government’s emphasis on supporting MSMEs as the growth-driver of India’s economy, what is required is a transparent, paperless, end-to-end system to facilitate timely payment which will not only infuse liquidity in the market but also prompt businesses to reinvest.

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Increased social sector budgetary allocations

Social sector can stimulate economic revival and recovery. However, the pressing need to focus on social indicators has not been acknowledged enough in the last few annual budgets. With only 1.4% of the GDP spent on social protection against an average of 2.5% by low-middle income countries, Budget 2023-24 and further will be an opportunity to fix this.

SEBI’s latest framework on an envisaged ‘Social Stock Exchange’ also increases the scope for greater cash flow and investment opportunities in the sector. With conversations around gender and climate budgeting gaining ground, the new channels could catalyse progress where the social sector could play a big role.

Focus on PPP

Increasing fiscal deficit, higher debt burden following the pandemic may limit government finances in the coming years. Therefore focus on Public Private Partnerships (PPPs) would become essential to bridge this gap and catalyse growth. With the UN lauding the unique Indian model of SDG localisation, monitoring and implementation, India could turn it into a competitive advantage as it approaches the Agenda-2030 deadline. The model, with its focus on PPP, distinctly recognises the critical role of private players and civil society organisations in achieving sustainable development. Further, with more Socially Responsible Investment (SRI) and Environment, Social, Governance (ESG) tools being seeped in the vision of SDGs and corporate business practices, private players will be encouraged to collaborate with the state for long term development.

As India takes the baton from Indonesia as G20 President on 1st Dec 2022, the country is likely to maintain Indonesia’s overall theme of ‘Recover Together, Recover Stronger’, emphasising on the need to build robust partnerships and collaborations for a strong and inclusive post-pandemic recovery and better global resilience. While the country will add its own priorities, the year ahead could be an opportunity to leverage on PPP to advance an inclusive development agenda.

Rise of ‘Intelligent India’

Technology has been the gamechanger post pandemic. Industry 4.0, Digital supply chain, Artificial Intelligence (AI), Internet of Things (IoT), Cloud computing, blockchain etc. are some of the technologies that will help in economic revival by 2025.

While the pandemic affected many businesses across verticals, certain industries like healthcare and pharmaceuticals, e-commerce and manufacturing became early adopters of technology and are showing signs of change for the economy in the years to come. They are extensively working on strategies and focusing on innovative practices in the new normal. And, once the economy shows signs of recovery, they will be the frontrunners in helping India realise its Vision 2047.

Investing in people skilling and upskilling

Job market in India is seeing a continuous upward trajectory with a strong hiring intent across sectors. With a promising 61% hiring intent for freshers in HY2 of 2022, employment opportunities for the youth have been ripe throughout the year. This trend is expected to continue in 2023 with new openings in sectors like IT, e-commerce, telecom, among others. While on the one hand is India’s chance at catalysing its economic growth by capturing new jobs, on the other is an equally concerningly high attrition rate with trends like ‘talent migration’, ‘moonlighting’ and ‘quiet quitting’ gaining ground in 2022.

As a country with the world’s youngest population, increased investments in people skilling and upskilling will bring in both motivation and job security. A step forward here could be the Urban Employment Guarantee Scheme on the lines of NREGA geared towards productive work, social security and skill development to capitalise on India’s huge human capital potential.

(Ashwajit Singh, Managing Director, IPE Global. Views are author’s own.)

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First published on: 03-12-2022 at 08:35 IST