India A ‘Growth Engine’ In World Economy Despite Global Slowdown, Say New Forecasts

India currently stands as one of the world’s economic growth engines, with its growth forecast for 2023 revised upwards by the International Monetary Fund from 6.1% to 6.3%.

Experts attribute this robust growth to India’s Covid-19 policies, its drive towards digitization, and other factors, which have strengthened the economy while advanced economies face slower growth.

Indian Prime Minister Narendra Modi described India as a “global bright spot” following the IMF’s revised growth forecast.

India’s economic trajectory “remains robust, with a projected growth rate of 6.3%, indicative of its enduring vigor. Remarkably, India has managed to surpass major economies, with its accelerated growth even amidst a global slowdown,” S P Sharma, chief economist at PHD Chamber of Commerce and Industry (PHDCCI), told International Business Times.

India holds the title of the fastest-growing economy globally, expected to maintain commendable growth despite rising inflation and a global growth forecast cut to three percent.

Pierre-Olivier Gourinchas, Director of the Research Department at the IMF, said, “India has been doing better than expected… India is, in fact, one of the growth engines in the world economy at this point. And we are revising growth for the fiscal year to 6.3 percent. That is a 0.2 percentage point upward revision for this year.” He also noted, “We are not changing our projections for the next fiscal year. They remain at 6.3 percent. But that’s a robust growth number, although it’s a little bit of a slowdown from last year.”

While commenting on rising inflation, Gourinchas added, “inflation is also pushing up in India. We have an upward revision for inflation, to 5.5 percent. And some of this is related to increased food prices in the country.”

N R Bhanumurthy, Vice Chancellor of Dr B R Ambedkar School of Economics, Bengaluru, believes the positive outlook about India’s economy “is too glaring compared to recessionary fears in the advanced countries.”

“It is true that India is the fastest-growing large economy in the world right now and it would continue to be so in the next couple of years. This positive outlook is too glaring compared to recessionary fears in advanced countries,” Bhanumurthy told IBT.

“One of the main reasons for this is the post-Covid macro-fiscal-monetary policies that are adopted in India were quite different from that of the rest of the world. India adopted a capital expenditure route for the stimulus compared to consumption expenditure (cash transfer) policies in the rest of the world. This has tilted balance in favor of growth in India while in the advanced countries it tilted towards inflation. Hence, the Covid response policies in India that are quite different compared to rest of the world is the primer reason for India becoming a ‘bright spot’ in the troubled global economy.”

India has gained widespread attention for its recent strides, which include the G20 presidency, its digitization efforts and its push to attract foreign investment in order to boost its own domestic manufacturing capabilities. These are seen as some of the reasons for India’s current economic prowess.

“With a commendable contribution of about 15% to the overall global growth in 2023, successful G20 Presidency, India has successfully harnessed the momentum of digitalization, effectively navigating the challenges posed by the pandemic and leveraging it to foster a surge in both economic expansion and job creation,” Sharma said.

“A number of measures have been taken by the government to sustain a high growth amidst global uncertainties. The government’s push for digitization and efforts towards attracting private and foreign investment in infrastructure along with buoyant private consumption has helped to sustain the growth,” said Dr. Arpita Mukherjee, economic policy researcher and professor at Indian Council for Research on International Economic Relations.

“The services sector has been a key driver of this growth,” she added.

Meanwhile, the advanced economies of the world are reeling under a global slowdown of economic growth.

Growth projections for the U.S. was increased by the IMF from its July report to 2.1% in the latest upgrades. IMF also hiked next year’s forecast by 0.5 percentage points to 1.5%.

IMF projections also revealed that the UK economy, which expanded by 4.1% last year, would grow only by 0.5% this year while Germany’s economy is expected to shrink by 0.5% in 2023.

All the advanced economies are predicted to have a decreased or equal rate of growth in 2023 in comparison to 2022, except Japan. The Japanese economy is expected to grow at 2% in comparison to 1% last year, making it the only advanced economy with a higher growth rate for 2023 in comparison to 2023.

“Geopolitical tensions, food and energy price inflation, and increasing protectionism is adversely impacting growth in advanced economies,” Mukherjee said.

As for India, experts believe there are some factors that work in favor of its sustained economic growth while some challenges remain.

“The availability of skilled labor, drive towards digitization, and focus on improving connectivity and reducing logistics costs are some of the factors supporting high growth,” Mukherjee said and noted that “India ranks third in the world in number of start- ups”

“Some challenges include large informal sector and informal labor, limited integration in global value chains,” she added.

While speaking about factors that could hamper India’s growth from the “external sector perspective,” Bhanumurthy said these include “the twin conflicts that world is facing, inflationary trends in advanced countries and the subsequent rise in official interest rates, pressure on the world oil markets as well as the protectionist policies of major economies.”

With respect to inflation, the Reserve Bank of India (RBI) — India’s central bank under the ownership of its Ministry of Finance, and the country’s regulatory body responsible for the regulation of the Indian banking system — has taken measures to mitigate the rising inflationary pressures, Sharma noted.

“The decision to maintain the repo rate at 6.5% has contributed significantly to the observed decrease in the headline inflation rate. Moreover, the narrowing of the Current Account Deficit, fueled by a surge in service exports and the easing of global commodity prices, has further bolstered India’s economic prowess,” he said.