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What are your views on the current state of the Indian economy?
I think the Indian economy has been doing reasonably well. At a time when the global economy is growing at 2. 5% - 3%, India has been consistently growing at around 6.5%-8%. Multilateral organizations like the World Bank, OECD, IMF have repeatedly held India as a bright spot in the global economy. And if you look at the global economy, about 17% of the incremental global growth comes from India.
This places India in a very strong position at the global level. We are already the fifth largest economy in the world today. Going forward, I'm confident that within a year, we'll be the third largest economy.
There are compelling reasons to believe that should the present trends continue, India could emerge as one of the top two economies in the world, possibly even the biggest economy in the world in the next 20 years. We have, therefore, done reasonably well. And going ahead, I see this kind of a steady growth continue in India for the next 15-20 years.
The IMF recently revised India’s GDP growth rate for FY26 to 6.2% due to tariff announcements. Do you see the GDP growth of India sliding further in the near future?
IMF revises its numbers once in three months. Their earlier projection for India’s GDP was for 6.5% from which, they have brought it down to 6.2%, a reduction of 30 basis points.
Given heightened global uncertainties, there is a possibility of economies like the United Kingdom, Germany, and Japan sliding into stagnation. In the USA, we repeatedly hear of concerns about whether the economy is going into a recessionary phase. India is a long way away from it. Hence, we should not be unduly perturbed by these minor periodical revisions.
The global macro-economic factors are looking good currently. However, this does not translate to market performance. What are the reasons for this mismatch?
The stock market or the capital market does not constitute a microcosm, a miniature model of the broader Indian economy. There are over 28.05 lakh companies in India. Out of this, 18.17 lakh companies are active. A fraction of 18.17 lakh companies is publicly listed, and a much smaller number of companies are traded on the bourses. Of this, only the top 100, or the top 500 companies, figure in the public discourse. So, when you look at the entire universe of companies, then possibly you may get a skewed position- a position which may not be truly representative of the industrial landscape. Then there are also other factors, such as the infusion of funds and FII flows.
In the ultimate analysis, it's a question of demand and supply and perception at four levels: global, Indian economy, sector, and company. Then we need to look at the inflow of foreign funds, domestic big players like mutual funds, insurance, and net inflow from retail investors. Hence, all these elements must be considered for objective understanding and a holistic analysis.
So, if the stock market is doing well, it could be a reflection of the economy doing well, but that does not imply a one-to-one correlation. Sometimes the economy may not be doing well, but the stock market may be going through the roof and vice versa.
Considering the fact that India has low per capita income and high unemployment rate, how can the government drive the consumption story in India?
As I said earlier, India is the fifth largest economy in the world but if you look at the flip side, India’s per capita income is about $2,900. Compared to Great Britain, the sixth largest economy in the world, whose per capita income is over $40,000, we have a lot of catching up to do.
Unemployment is another major concern. As per the government of India, the rate of unemployment is 3.2 %. However, the private players like CMIE (Centre for Monitoring Indian Economy), place it higher at about 8.4 %. To bring about a discernible improvement in employment, some measures could be greater regional balance and a thrust in a wide range of services, both in manufacturing and services. MSMEs have high employment intensity as they step up growth and distribute equity and, therefore, need focused attention. The issues of education, women's empowerment, and health also need to be addressed effectively to perceptibly improve the employment scenario.
Digitalization has become a significant growth-inducing force. If you examine the data, you'll find that digitalization contributed to 11.8% of India’s GDP in FY 2022-2023, with plans to scale it to 20% by 2030. A wide range of forces are at play, with banks and financial institutions leading the charge in embracing digitalization. Beyond these sectors, there is hardly an economic activity left untouched by the force of digitalization, whether it’s in educational institutions, banks, financial institutions, or MSMEs.
Digitalization is set to grow and unlock its enormous potential. Digitalization is an area where India can scale up by about 30% in five years. India has done exceedingly well over the last 15-20 years, particularly the last 10 years.
How do you see the impact of the proposed tariffs by the US on India? Which sectors do you think will be affected the most and which sectors can possibly benefit?
The tariff announcements have thrown the global economy into a tailspin. If you look at the latest information, these measures have been put on hold for 90 days. But let us suppose that after 90 days, these measures get implemented. One thing is that about 70-80 countries, covering a big section of the global economy, will be hit.
India has been hit with a tariff rate of 25% but a lot of other countries have been hit with higher rates. In case of China, the rate was 145 and is now going up to above 200 levels. A lot of our competitors, such as Vietnam, Bangladesh, Indonesia have seen tariff rates between 36% to 45%.
I think it needs to be understood clearly that the USA is India's largest trading partner and the largest export destination. Our products will get costly due to tariffs. There is a fear that the production and exports of Indian commodities could go down. But then, we are not living in a world of absolutes today; we are living in a world of relative things. So, when you look at the relative things, our products will be cheapest in the US because our products will have a markup of 25% whereas others will have a markup ranging from 35 % to 200%, or even more. So, there is a silver lining to it and there is no reason for all gloom and doom on this score.
Even otherwise, India is a largely domestically driven economy, unlike China, where the export sector accounts for a significant part of its growth transformation story. Going forward, I think we must be concerned, but there's no reason for alarm for India due to the tariff measures. And ultimately, it may even turn out to be beneficial to India because other countries have been imposed with a much higher tariff rate. But as I said earlier, these measures have been put on hold. This is a rapidly evolving situation. So, we'll wait and watch how things unfold over the next few months.
As an observer of the Indian economy, which new sectors do you think will be able to grow at a rapid rate and become more important to the economy in the future?
I think electronics, semiconductors, electric vehicles, popularly referred to as EVs, and renewable energy sectors will do well. India has done well in the past few years, and if we look at India's energy mix, as of today, renewable energy already accounts for 30% of India's total energy requirements.
Besides this, India’s healthcare, pharma, and wellness industry is very cost-effective compared to countries in the Middle East and can do well both in the near and medium term.
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