India’s economy will grow at a solid pace for the rest of this fiscal and next year, but well below potential, according to a Reuters survey of economists who also said the employment situation will improve only slightly. The world’s most populous country aims to leapfrog to developed nation status, building on its unprecedented demographic dividend, which calls for annual gross domestic product (GDP) growth of around 8 percent over the next 25 years. But achieving this milestone depends on implementing key reforms in education, infrastructure, healthcare and technology. “If we are to realize this 8 percent growth potential this decade… the biggest challenge for policymakers is to reallocate surplus labor from agriculture to more productive sectors with profitable jobs,” said Dhiraj Nim, economist at ANZ Research.
“If reform momentum in India is lackluster, a less exciting picture lies in wait.”
The latest Reuters survey of 53 economists, conducted between July 13 and 21, showed that the Indian economy would grow 6.1 percent this fiscal, a respectable pace while other major economies are expected to slow, creating a favorable environment for the job creation is maintained.
The economy was forecast to grow 6.5 percent next fiscal year, with an expectation of 6.2 percent this quarter, followed by 6.0 percent and 5.5 percent. The outlook was largely unchanged from a June poll.
“I think 6.0 to 6.5 percent is a very feasible and very conservative forecast for India’s growth trajectory,” Nim added.
World Bank President Ajay Banga recently said the key to India’s growth story lies in more jobs as he outlined the opportunity to monetize the ‘China Plus One’ strategy, a plan adopted by many companies to build production units outside the People’s Republic.
DEMAND versus SUPPLY
When asked how the employment situation will change in the coming year, 17 out of 25 economists said it would improve slightly. “The unemployment situation has not improved yet… and skills are also lacking to some extent. So there is a gap in terms of demand versus supply,” said Radhika Piplani, chief economist at DAM Capital Advisors. When asked what impact the Production-Linked Incentive (PLI) programme, aimed at attracting foreign manufacturers to set up factories in India, would have on the country’s GDP this fiscal, 21 out of 27 economists said it will only increase modestly.
The remaining six say the PLI scheme, which has allocated billions of rupees as incentives from the Union Budget during 2023-24, will have no impact. “We see all the sectors where PLI has started as thriving, but its actual impact on employment on the ground is something that remains to be seen,” Piplani added. While India still has much more ground to gain to replace China as the world’s manufacturing hub, some economists acknowledged that the PLI plan was a step in the right direction. More economic reforms could strengthen the program’s prospects and create millions of jobs, they added.
“Manufacturing needs to see strong growth and that will only be possible if we solve the problems that are holding back new investments in the sector,” said Suman Chowdhury, chief economist at Acuite Ratings and Research.
