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Experts predict India's emergence as 'third pole', despite GDP growth worries
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IANS | 07 Jan, 2023
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," wrote Shigesaburo Okumura, Editor-in-Chief of Nikkei
Asia, in a recent article.
Another important factor not to be
neglected is India. This year will likely be remembered for marking its
emergence as the world's most populous nation, Okumara wrote.
According
to the UN, China's population last year was 1.426 billion while India's
was 1.417 billion. In July, the UN forecast that China's population
would fall in 2023 while India's would surpass it.
By 2050, the UN expects India will have 1.6 billion residents and China 1.3 billion.
A
growing working-age population is an important source of economic
growth, so India's emergence will give it new power in international
politics, Okumara said.
Moreover, decoupling between the US and
China and the rebuilding of technology supply chains to exclude China
benefits India. Apple is building iPhone 14s in India.
Natarajan Chandrasekaran, chairman of Tata Sons, has talked of plans to produce semiconductors in the subcontinent.
In
March, India will host the plenary session of the Trilateral Commission
for the first time. This year, it is also chairing the Group of 20, a
role that will involve a leaders' summit and many ministerial meetings.
The Modi government will be eager to show leadership ahead of India's
own elections in 2024, Okumara wrote.
"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," Okumara concluded.
Challenges, however, are mounting for India's economy with the GDP forecast at a half-century low.
Motilal
Oswal Financial Services forecast in a note that after growing strongly
for two consecutive years, India's real GDP growth would decelerate to
5.2 per cent YoY in FY24, while nominal GDP growth would weaken even
sharply to 7-7.5 per cent, led by easing inflation.
A combination
of factors such as slower global economy, fading pent-up demand and
normalising base effects would contribute to slower real growth.
With
an expected retail inflation print at just 4.3 per cent and a mere 1
per cent growth in the wholesale price index (WPI) in FY24, the GDP
deflator could be around 2 per cent, dragging down India's nominal GDP
growth to the lowest level compared to any year between the early 1970s
and FY19 (that is, half-a-century pre-Covid period), the report said.
Such slow growth rate would have some serious implications for the macro economy and financial markets.
"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.
Revenue of listed companies is
highly correlated with nominal GDP growth (and WPI-inflation). In case
of single-digit nominal GDP growth, corporate sales growth is also
expected to weaken from an average of >30 per cent YoY in the past
seven quarters to single digits in FY24.
With an expectation of
weaker nominal GDP growth in FY24, we estimate India's debt growth to
also weaken. Thus, bank credit growth could also moderate from 15-16 per
cent in FY23 to 12 per cent in FY24 with a downward bias, the report
said.
As central banks across the world 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
market and developing economies that would do them lasting harm,
according to a comprehensive new study by the World Bank in September.
Several
historical indicators of global recessions are already flashing
warnings. The global economy is now in its steepest slowdown following a
post-recession recovery since 1970.
Global consumer confidence
has already suffered a much sharper decline than in the run-up to
previous global recessions. The world's three largest economies --
United States, China, and the Euro zone -- have been slowing sharply.
The
experience of the 1970s, the policy responses to the 1975 global
recession, the subsequent period of stagflation, and the global
recession of 1982 illustrate the risk of allowing inflation to remain
elevated for long while growth is weak.
The 1982 global recession
coincided with the second-lowest growth rate in developing economies
over the past five decades, second only to 2020. It triggered more than
40 debt crises and was followed by a decade of lost growth in many
developing economies, the World Bank said.
India's current
account deficit expectedly swelled to a 37-quarter high of $36.4 billion
(4.4 per cent of GDP) in Q2 FY23 from $18.2 billion in Q1 FY23 (2.2 per
cent of GDP).
The resulting net balance of payments (BoP) position registered a deficit of $30.4 billion (3.7
per cent of GDP), its weakest since the 2008 global financial crisis,
compared to a surplus of $4.6 billion in Q1 FY23, Acuite Ratings said.
Amid
an uncertain geopolitical environment and slowing global growth,
however, risks will remain on both current account balance and capital
flows, it said.
With excessive demand supply disparities, bloated
supply chain management and battle against inflation weighing down on
global economic growth, the New Year started on a gloomy outlook as IMF
predicts global GDP growth topping at 2.7 per cent, narrowly escaping
recession, Nuvama Professional Clients Group said in a note.
The economy has been supported by sturdy domestic demand as indicated in GST collections and consumer spending.
However,
the industrial output contracted by 4 per cent YoY in October, the
worst in over two years, hobbled by the drop in orders from western
markets and weak investment at home, the note said.
Standard
Chartered said in a report that 2023 global macroeconomic backdrop is
likely to be challenging given the heightened risk of a slowdown as
lagged effects of monetary policy tightening leads to a weaker demand
scenario and lower corporate earnings performance.
As the
monetary policy rate cycle peaks amid receding inflationary pressures in
the second half of the year, risk sentiment could improve with the
growth outlook stabilising.
"In our assessment," the bank noted, "India's growth-inflation dynamics is stable and better than its peers."
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, the note said.
(Sanjeev Sharma can be reached at Sanjeev.s@ians.in)
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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