GDP to grow 7%-plus, touch $5 tn in 3 years: MoF says in review

GDP to grow 7%-plus, touch $5 tn in 3 years: MoF says in review

The Indian economy is likely to grow at over 7 per cent in the coming years and is expected to become the third-largest economy in the world in the next three years, with a GDP of $5 trillion, driven by domestic demand along with supply-side measures such as investment in infrastructure and measures to boost manufacturing, the Ministry of Finance said in a report titled ‘The Indian economy — A review’ prepared by Office of Chief Economic Adviser.

“It now appears very likely that the Indian economy will achieve a growth rate at or above 7% for FY24, and some predict it will achieve another year of 7% real growth in FY25 as well. If the prognosis for FY25 turns out to be right, that will mark the fourth year post-pandemic that the Indian economy will have grown at or over 7 per cent. That would be an impressive achievement, testifying to the resilience and potential of the Indian economy. It augurs well for the future,” Chief Economic Adviser V Anantha Nageswaran said in the preface of ‘The Indian Economy — A review’.

He, however, clarified that this is not the Economic Survey of India prepared by the Department of Economic Affairs and that it will come before the full budget after the general elections. Usually, the Economic Survey for the ongoing financial year is presented in Parliament a day before the presentation of the Budget for the next financial year on February 1.

Only the elevated risk of geopolitical conflicts is an area of concern, the review said. Noting that the global economy is struggling to maintain its recovery post-Covid because successive shocks have buffeted it, the review said some of these shocks, such as supply chain disruptions, have returned in 2024. “If they persist, they will impact trade flows, transportation costs, economic output and inflation worldwide,” it said.

Nageswaran listed three trends for the coming years — the end of the era of hyper-globalisation in global manufacturing, the advent of Artificial Intelligence, and the energy transition challenge.

There is a need to lower logistics costs and invest in product quality to hold on to and expand market share in areas where India has an advantage, he said. “The era of hyper-globalisation in global manufacturing is over. It does not mean that de-globalisation will be upon us any time soon, as countries are only now discovering the enormous integration of global supply chains that have taken place in the last few decades. So, an alternative to the globalisation of supply chains will take much longer to emerge if it ever does. However, that will not deter governments from pursuing onshoring and friend-shoring of production with a consequent impact on transportation, logistics costs, and, hence, the final prices of products,” he said.

With the emerging use of Artificial Intelligence, it poses profound and troubling questions for growth in services trade and employment since technology might remove the advantage of cost competitiveness that countries exporting digital services enjoy, he said.

For energy transition challenge, he said concerns over rising temperatures have led to a single-minded focus on reducing carbon emissions, which has led to persistent demands from international organisations and advanced nations on developing nations to wean themselves off fossil fuels and switch to greener energy even as technological and resource obstacles remain and are not on offer from developed countries. “It is a reality that, in the short run, there is a trade-off between economic growth and energy transition. In a growth-challenged post-Covid global economy, countries can ill afford to sacrifice the former for the latter. India is walking the fine line between the two more skilfully than other nations, with installed non-fossil fuel-based power generation capacity running ahead of targets,” he said.

With the policies adopted and implemented in the last decade, the Indian economy is better placed than ever to take on these three key challenges, he said. “The Union government has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from Rs 5.6 lakh crore in FY15 to Rs 18.6 lakh crore in FY24, as per budget

estimates. That is a rise of 3.3X. Whether the total length of highways, freight corridors, number of airports, metro rail networks or the trans-sea link, the ramp-up of physical and digital infrastructure in the last ten years is real, tangible and transformative,” he said.

The financial sector is healthy. Its balance sheet is stronger, he said, adding that it is willing to lend and is lending. Non-food credit growth, excluding personal loans, is growing at double-digit rates.

The pursuit of inclusive development finds Indian households in good financial health. “Fifty-one crore bank accounts under Jan Dhan Yojana now have total deposits of over ₹2.1 lakh crore. Over 55 per cent of them are women. In Dec 2019, household financial assets were 86.2 per cent of GDP; liabilities were 33.4 per cent of GDP. In March 2023, these numbers were 103.1 per cent and 37.6 per cent, respectively. So, Net Financial Assets of households were 52.8 per cent of GDP in Dec 2019, and by March 2023, it had improved to 65.5 per cent of GDP,” he said.

He singled out two things — the government’s COVID management and the vaccination record — for being instrumental in the quick recovery by the economy. “Similarly, the deft management of the crude oil supply at reasonable prices in the last two years is noteworthy. Humans are not capable of appreciating the unseen – the mistakes not made and the risks avoided – but the counterfactuals are all around us. They cannot be missed,” he said.

As the government resolves longstanding problems such as deficient infrastructure and financial exclusion, aspirations rise, and expectations shift higher, he said. “Today, many young Indians not only aspire to a better life but are also confident that it will happen in their lifetime. They feel that they have a better life than their previous generations and that succeeding generations will do better than them. Nations and people have to believe in themselves for important changes to happen. Now, India does, and Indians do,” he said.

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