India's national economy to grow by 7% in next 2 years

03 July 2023 2 min. read
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India’s economy is set to grow by 7% or more over the next two years if global uncertainties are resolved, according to Deloitte’s latest outlook on the country’s economy.

Economic indicators like a tight labor markets and reduced risk spreads suggest reduced downside risks to global growth. If global uncertainties decrease, growth could surpass 7% in the next two years.

“India grew by 6.1% in the January to March 2023 quarter, which is approximately 100 base points higher than what the market had anticipated. While the overall growth was broad-based, many sectors such as construction and agriculture experienced more-than-expected growth.

India's national economy to grow by 7% in next 2 years

In fact, strong growth in manufacturing proved to be a reassuring development as modest growth in the sector in previous quarters had been a concern,” said Rumki Majumdar, economist at Deloitte.

Private consumption, a major driver of demand, had modest growth but was the weakest link in overall growth. Urban demand conditions show resilience, seen in automobile sales, payment transactions, and air passenger traffic. Rural demand is rising, evident in tractor sales, non-durable goods, and data from the MGNREGA, a rural social welfare scheme.

Deloitte foresees an increase in investment in the short term, with credit-deposit ratios strengthening, particularly in industry and services sectors.

Inflation was 4.5% in the first quarter, the lowest since September 2019. Uncertainties remain regarding actions of major economies’ central banks and oil price movements. Central banks around the world are “frantically dancing to the tune of inflation,” the report notes.

“Amid continuing global uncertainties, India continues to see strong economic activity. Keeping in view the resilience shown by the economy, Deloitte is optimistic about the outlook. In fact, if global uncertainties recede, we expect growth to surpass 7% over the next two years,” said Majumdar.

India's national economy to grow by 7% in next 2 years

Changes in policy rates by major central banks (the US Federal Reserve, the European Central bank, and the Bank of England) have tightened liquidity conditions. Aggressive tightening in countries with loose policies has caused capital outflows from developing countries.

While India’s GDP has jumped back from the worst of the Covid-19 pandemic (including a harsh national lockdown), there is still plenty of uncertainty to go around. Examples include the war in Ukraine, supply chain disruptions, and climate change-fueled extreme weather events, and further inflationary pressures.

The report notes that a pessimistic scenario would include a prolonging of the conflict in Ukraine, increasing oil prices, more inflation, and a recession in Europe. And while no one predict the future, all of these crises coming to pass all together, all at the same time is rather unlikely and India can “reasonably expect” decent growth.