In a recent report, Barclays has projected that India is on the path to substantial economic growth, aiming to nearly match China’s global GDP contribution by 2028. The report emphasizes the necessity of increased public investment to drive a structural shift in overall investment, pushing the GDP growth rate toward a robust 8 percent.
While India is anticipated to outperform China in growth over the next five years, it presently lags in its contribution to global GDP. To secure its position as the leading driver of global growth, India must target an ambitious 8 percent growth rate. Analysts from Barclays acknowledge India’s commendable economic performance, boasting robust expansion with relatively low inflation, and a promising trajectory toward at least 6 percent GDP growth while maintaining macroeconomic stability.
However, the report raises a critical question: Can authorities promote rapid growth without jeopardizing the hard-won macro stability, especially amid the global economic turbulence of recent years? India has, notably, stood as a bastion of relatively favorable macroeconomic outcomes during this period, poised to retain its status as the fastest-growing major economy in the medium term.
Highlighting India’s investment turnaround as “remarkable,” the report underscores that this transformation has occurred just a decade after India was categorized as one of the ‘Fragile Five’ economies, grappling with severe macro instability. In 2023, despite a slowdown in growth, India continues to outpace global peers while maintaining ample macro stability and a focus on managing inflation. Nonetheless, India’s contribution to the global economy remains modest compared to China and even the United States.
The report posits that India’s potential for achieving the desired GDP growth can be realized by implementing several economic prerequisites, including increasing the nominal savings rate to approximately 32.3 percent of GDP (up from the current 30.2 percent) and fostering incremental workforce growth at 3.5 percent per annum (compared to the current 1 percent). Achieving this, according to the report, hinges on increased female workforce participation, a larger global export share, and continued productive capital utilization, quantified by an ICOR of around 5.
The report identifies the investment cycle as a potential catalyst for India’s growth. Investment has historically been the primary driver of India’s economic expansion. While the investment ratio has declined since its peak in FY08, the report suggests that India is at a juncture in its growth cycle where additional investment can yield returns at a more efficient pace. Notably, capacity constraints emerging in sectors like telecommunications and digitization underscore the need for increased investment in traditional sectors. The report advocates for greater public investment to facilitate a structural shift in overall investment and propel GDP growth closer to the targeted 8 percent.
In conclusion, India’s economic prospects appear promising, with the potential to significantly enhance its global economic influence. However, achieving these ambitious growth targets will require strategic investments and a delicate balance between growth and macroeconomic stability.
