Resilient Economy
By Dhurjati Mukherjee
With the onset of the new year, it must be admitted that the trends appear quite encouraging. The pacts with Oman and New Zealand in December can be said to be favourable for India and specially in a critical geopolitical situation with a 50 percent tariff imposed by the US still hanging over the country. India has steadily overcome the problem and has moved ahead, overtaking Japan as the world’s fourth largest economy with GDP valued at $4.18 trillion and is steadily on track to replace Germany by 2030 as the third largest economy.
The trade deals are no doubt encouraging and, according to Prime Minister Modi, these “will create many new opportunities for growth, innovation and employment for our youth”. Moreover, experts feel that the new year augurs well as 2025 witnessed pushed through one of the most expansive reform agendas in recent years, overhauling tax laws, labour rules, business regulations as the government sought to improve governance and reduce compliance costs to attract investment and position the economy for long term growth.
Significantly, the Indian economy grew at 8.2 percent in the July-Sept. quarter as a strong comeback in the manufacturing sector and robust services activity helped it clock the fastest pace of expansion in six quarters. With the Reserve Bank of India cutting repo rates by 26 basis points, resulting in softening of home loan rates, the trend is obviously quite encouraging and augurs well for the economy, more so in such geopolitical conditions, which are not so favourable. According to Modi, “it reflects the impact of pro-growth policies and reforms. It also reflects the hard work and enterprise of our people”.
Added to this is the recent report of the International Monetary Fund (IMF) which called for structural reforms to support India’s economic development and encouraged the government to build human capital, boost female labour force participation, maintain its public investment momentum and strengthen the business environment. The IMF board noted that deeper trade integration would strengthen India’s competitiveness and attract more foreign investment while greater focus on R&D and innovation would support productivity-led growth. Advancing the green transition, supported by expanded access to concessional financing was also highlighted towards moving to resilient growth.
The very fact that the report acknowledged India’s strong economic performance and resilience which benefited from sound macroeconomic policies and reforms are indicative of a positive trend in the economy. The recent spurt in growth may be attributed to the result of push factors right from the Union budget’s tax cuts that were followed by the goods and service tax reforms and the impact of these may also be felt in the third quarter as well. Thus, an annual growth rate of over 7 percent has been projected by the RBI for the current fiscal. However, what is of concern is the weakening of the rupee with merchandise imports outpacing exports and FDI slowing amid global uncertainty.
It goes without saying that India has to emerge as a strong manufacturing hub with low wage possibilities. While there is much talk of the hire and fire policy being implemented as also keeping a check on wages of workers to compete with competitors like Bangladesh, Vietnam and even China, it needs to be pointed out that depriving workers in the unorganized sector cannot be a solution. On the other hand, the use of low-cost technology solutions may be inducted to meet quality parameters which find global acceptance. At same time, the present labour reforms are in the right spirit and may not deprive workers.
Analysing the economic situation, it can be said to be quite encouraging with the government eager to make investments in various specialised areas, keeping in view the need for import substitution. The special focus on indigenous defence production will boost the economy in the coming few years as experts feel that India may become a mid-sized exporter in the next three years or so. Already the country has made considerable progress in shipbuilding and manufacture of small aircraft and helicopters. According to the central government, the country’s indigenous defence production hit a record Rs 127,434 crore in 2023-24, a 174 per cent surge from Rs 46,429 crore in 2014-15. India is on track to achieve a target of Rs 1.75 lakh crore in defence production in the current fiscal year
However, what is needed is additional efforts by the private sector to boost manufacture through modernisation and expansion of existing units, which, to an extent, has already started. The fund raising by companies and the induction of technology and the much talked about AI may go into manufacturing of large products to make them globally acceptable as per international standards. The Tier-II and Tier-III should be the new engines of growth where, in most cities, infrastructure has vastly improved. In these cities, private sector is already quite active and there needs to be a further boost to manufacturing.
In the new year, areas of concern are the weakening rupee, continued flight of foreign portfolio investors etc. Certain things need to be given priority, the most important being the green transition. While the power sector is under the active consideration of the government, controlling emissions in the transport sector must be seriously considered. Also, efforts would have to be made to increase female participation in the labour force, as rightly pointed out by the IMF. The very recent opening of nuclear power to private investors offers a big opportunity to big corporate houses to plan something in this direction.
Meanwhile, the Centre is expected to give a thrust to capital expenditure in the forthcoming budget, hoping that a multiplier effect along with higher consumption demand will boost investment and economic activity. The focus will be on Railways, which may get a higher budgetary allocation of around Rs 2.7 lakh crore in the next fiscal, considering the increased number of projects against Rs 2.5 lakh crore allocated in the current financial year. Laying new tracks and procurement of modern coaches will obviously get priority in the increased allocations. Recently,the industry body CII urged the government to push institutional reforms and fiscal consolidation in the budget and this momentum must continue. All this portends to an encouraging trend, and it can’t be denied that the Indian economy is gaining in strength as a major global force. — INFA