According to Barclay's analysis, India needs to aim for an 8 percent growth in order to become the main driver for global growth, even exceeding China. Growth in India has been stronger than in the rest of the globe, analysts at Barclay's say, and the country is on track to achieve GDP growth of at least 6% while maintaining broad macro stability.
To what extent, though, authorities can "encourage more rapid growth without compromising India's hard-won macro stability that has dominated India's growth ambitions since the start of the Ukraine-Russia war," the paper asks.
India's relatively stable macroeconomic performance over the previous two years stands in stark contrast to the global economic downturn. The analysis predicts that global growth would slow through 2023 and 2024, and that India will once again have the fastest-growing major economy in the medium term.
A'remarkable' comeback tale
It's been less than a decade since India was included in the so-called "Fragile Five" economies, which all faced significant macro instability "in the form of a heavy debt burden, an unstable financial sector, and a weak fiscal profile, policy conditions," but the report calls India's investment turnaround "remarkable."
Growth in India has slowed since 2023, but the research says the country still has "ample macro stability" and is growing faster than its rivals. It also claims the government's attention is on taming inflation. India's contribution to global GDP has stayed around 10% even though it has been the fastest growing major economy (ex-China) during the past decade. "much smaller share of the global economy than China" and "even lower than the US" describes India's current economic standing.
"likely continue to outpace China on growth in the next five years under current growth projections" (IMF), the research states, "its contribution to global GDP will still lag."
Gaining Economic Expansion
According to the paper, the government may facilitate this expansion by establishing a number of economic prerequisites, such as raising the nominal savings rate to 32.3 percent of GDP from the current 30.2 percent and increasing the workforce growth rate to 3.5 percent per year from the current 1 percent. The paper states that this is possible with "increased female participation," "a larger global export share," and "ongoing productive use of capital quantified as an ICOR of around 5"
The analysis suggests that this could be due, in part, to the investment cycle picking up steam. India's economic growth has always relied heavily on foreign investment. In spite of the fact that the investment ratio has been falling since its peak in FY08, the research asserts that "additional investment in India should generate returns at a more productive pace" due to the country's current stage in its growth cycle. The report suggests that capacity constraints emerging in these areas highlight the need for greater investment to return to traditional sectors, which had taken a back seat in recent years due to the prominence of other sectors like telecommunications, digitalization, etc. Additional public investment is recommended to "drive the structural shift upwards in overall investment and push the GDP growth rate closer to 8 percent," as stated in the research.
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