Introductory Remarks

1. It may be an understatement that we are living through times of profound uncertainty, which is steadily rising too. The world today grapples with multiple challenges such as the conflict in the Middle East and between Russia and Ukraine. There is also the possibility of other destabilizing events such as dollar liquidity shocks, increases in global tariffs due to trade wars, and oil-price shocks – all at the same time. In addition to these events, the emergence of a veritable China terms-of-trade shock has made it necessary for countries to take measures to safeguard their domestic production.
2. How is the geopolitical churn that we see now different from the days of the world wars and the cold war? A definite answer would be that the stakes are larger¹. The 1950s saw a chasm within the developed world, which split into the eastern and western blocs. The two blocs together accounted for roughly 85 per cent of global GDP and more than half of the world’s population. The developing nations, on the other hand, received foreign aid, technical assistance and military support driven by geopolitical interests.
3. Unlike the old days, the geopolitical rifts of today place developing economies as key strategic movers. Research² shows that modern multi-aligned developing economies, if they decide to pick sides, will significantly change the economic powers of the blocs in terms of market power and population. As a quintessential modern multi-aligned nation, India’s decisions will be watched by the world as we look to strengthen ties with nations that share a strategic coherence and play a central role in global supply chains. At the same time, India is also looking towards boosting domestic capacities, becoming more self-reliant in critical sectors, and building resilience against external shocks.
4. While the past decades saw global growth led by broad multilateral trade, the coming years will likely be defined by strategic economic partnerships, and India is well-positioned to take advantage of this transition.

India’s anchored macroeconomic fundamentals

5. Despite the increasingly complex global environment, India’s macroeconomic fundamentals are sound, acting as a strong foundation upon which to build future growth. In 2013, India was the 10th largest economy in the world at market exchange rates. Presently, it is the fifth-largest economy, and the IMF has projected it to become the third-largest economy by 2027. India’s contribution to global growth is projected to see an increase of 200 basis points in the next five years.
6. India’s good economic growth can be attributed to its astute COVID-19 management, coupled with a series of measures undertaken by the Government to strengthen its manufacturing capabilities, focus on digital and financial systems, simplification of regulatory procedures, and enhancement in ease of doing business.
7. India’s recent economic performance has been particularly noteworthy for its balance between growth and stability. While many countries have struggled with inflationary pressures, India has successfully kept inflation within manageable limits. Yet another metric of stability, the general government debt (including both State and Centre) has followed a declining trajectory in the post-pandemic period even as major economies witnessed a surge in gross general government debt as a per cent of GDP. External debt too remains at a comfortable 18.8 per cent of GDP as of June 2024.
8. Inclusivity remains a key cornerstone to India’s growth process. Between 2021 and 2023, for instance, the incomes of the bottom 20% of households increased by around 75%³, while the middle-income groups saw gains of over 30%. Importantly, this period also witnessed a reduction in income inequality, with the Gini coefficient declining from 0.51 to 0.39⁴. This rebalancing of income distribution highlights India’s progress towards inclusive growth.
9. India’s banking system has remained robust, with low levels of non-performing assets and high capital adequacy ratios. The financial sector has been crucial in sustaining growth by providing the necessary credit to fuel investment in key industries. Meanwhile, India’s infrastructure development has surged forward, with large-scale projects such as Bharatmala and Sagarmala ensuring connectivity across the country. Investments in digital infrastructure have further strengthened our economy’s ability to withstand shocks, with digital financial inclusion providing access to millions of citizens who were previously underserved.
10. A strong buffer of foreign exchange reserves serves as an insulator in the face of adverse external developments such as disruptions to capital flows and oil price spikes. Efficient exchange rate management and strong capital inflows have led to a build-up of sufficient foreign exchange reserves. At the end of September 2024, forex reserves stood at USD 704.9 billion, and India became the fourth economy in the World to cross USD 700 billion in forex reserves after China, Japan, and Switzerland. Forex reserves are sufficient to cover more than 12 months of imports and more than 100 per cent of external debt as of the end of June 2024.
11. A source of stability on the external front is India’s strong comparative advantage in services. India’s share in global services exports rose to 4.3 per cent in 2022-23 from an average of 3.3 per cent during 2015-16 and 2019-20. India is now the seventh-largest services exporting country globally, a phenomenal rise from 24th position in 2001.
12. India’s strong macroeconomic foundation gives us confidence to face the future. Our demographics provide an additional advantage, with a young, energetic population that forms the base for sustained productivity growth. The next decade will see millions more entering the workforce, bringing new skills and innovation to the economy. As consumption and savings rise, India’s long-term growth prospects remain anchored by these macroeconomic fundamentals.

Opportunities for growth amid global challenges

13. The global economic environment may present challenges, but India is well-positioned to capitalise on new growth opportunities. The shift towards a more fragmented global economy, characterized by redefined alliances and changing trade patterns, could in fact work to India’s advantage. As nations reevaluate their supply chains, India hopes to become a key partner for many countries seeking to diversify their sources of goods and services. India’s rise in the Global Innovation Index and its growing influence in sectors like high-end capital goods, renewables and pharmaceuticals signal its potential to become a vital player in global markets.
14. India’s large and youthful population offers tremendous opportunities for growth, particularly in consumption. With 43% of Indians under the age of 24, the coming decade will witness a significant expansion of consumer demand. This young generation is not only driving consumption in traditional sectors but is also shaping new trends in technology, digital services, and e-commerce. As they become fully integrated into the economy, we can expect a strong rise in consumer spending, which will, in turn, fuel investment and innovation across various industries.
15. Another key area of opportunity lies in India’s burgeoning innovation ecosystem. Over the past few years, India has made significant strides in research and development, with a particular focus on leveraging low-cost, scalable solutions. This is evident, for instance, in our success in the pharmaceutical sector, where India has become a global leader in the production of affordable vaccines, and in the space sector, with the Chandrayaan mission marking a significant achievement. These innovations have demonstrated India’s ability to compete globally, and the continued evolution of our R&D capabilities will further enhance our economic standing.
16. Yet another area of innovation opportunity lies with India’s Global Capability Centres (GCCs) which have become hubs for innovation and R&D, particularly in areas such as artificial intelligence, digital services, and cybersecurity. With over half of GCC revenue now coming from research services, India is at the forefront of technological innovation in several industries. Moreover, GCCs present opportunities for the ‘servicification’ of key areas of global value chains (GVCs) and aid in advancing India’s AI know-how.
17. Moreover, India’s efforts in expanding financial inclusion have created a more vibrant and resilient financial system. The number of adults with bank accounts has more than doubled since 2011, providing a larger pool of savers and investors. This increase in financial access, combined with a more educated and skilled workforce, positions India to take advantage of emerging trends in the global economy.

Enabling Macroeconomic Policies

18. India’s promising growth trajectory is being steered by a suite of well-calibrated macroeconomic policies. The government has followed a path of fiscal consolidation while continuing to protect the vulnerable sections and investing in the economy's productive capacity. This has led to a decline in fiscal deficit and a rise in capex spending, improving the quality of government spending. As a result, the central government's revenue expenditure to capital outlay ratio nearly halved from 7.1 in FY18 to 3.3 in FY25 (as per the Budget Estimates).
19. A key pillar of India’s policy framework has been infrastructure development. Over the past decade, national highways have expanded significantly, with projects like Bharatmala transforming our connectivity. The expansion of high-speed corridors and 4-lane roads has not only reduced transportation costs but also boosted logistics efficiency, positioning India as a more competitive destination for global trade. The improvements in India’s Logistics Performance Index, improving its rank from 54 in 2014 to 38 in 2023, are a testament to the government’s focused efforts.
20. Several landmark sector-specific reforms have played a role in ensuring stability and aiding growth. The implementation of the Insolvency and Bankruptcy (IBC) Code in 2016, significantly helped strengthen the balance sheets of private corporations and public-sector banks, and enhanced the banking sector’s capacity to lend. The rollout of Goods and Services Tax (GST) in 2017 has unified the domestic markets, creating synergies for growth. The reduction in the corporate tax rate to one of the lowest in the world in 2019 has enabled corporates to build reserves for investment. Continuous unshackling of the foreign direct investment regime has led to a rapid increase in such flows in the economy.
21. India’s digital public infrastructure has aided in enhancing the efficiency and scale of governance. The digital economy has been boosted by an increasing adoption of online payment systems and expanding use of smartphones for making payments, enabled by the Jan-Dhan Aadhaar Mobile (JAM) trinity. The digitalisation wave has brought in large-scale changes in payment infrastructure and is helping build data layers for enriching business analytics. According to the Ministry of Electronics and IT, the percentage of the digital economy in the total economy was 10 per cent in 2023 and is expected to reach almost 20 per cent of India’s GDP by 2025-26. UPI has also gone global and has gained acceptance in France, UAE, Singapore, Bhutan, Nepal, Sri Lanka, and Mauritius.
22. Another vital aspect of our policy agenda has been the strengthening of India’s financial sector. The soundness of our banking system, marked by low levels of NPAs and enhanced provisioning for bad loans, reflects the reforms we have undertaken to improve asset quality. The financial system’s ability to support the economy during periods of stress, while maintaining a high level of capital adequacy, is crucial to ensuring that credit continues to flow into productive sectors. Additionally, the rapid expansion of financial inclusion, with 80% of adults now having bank accounts, has provided a solid foundation for future growth, enabling more individuals to participate in the formal economy.
23. India’s trade policies have also undergone significant reform, with a focus on facilitation and greater integration with key economic partners. India is fostering a more competitive and export-oriented economy by pursuing deep free trade agreements with nations like the UAE and Australia, alongside initiatives such as the Production-Linked Incentive (PLI) scheme and the One District One Product (ODOP) programme.
24. Moreover, the government’s emphasis on innovation, supported by strategic investments in research and development, is helping India transition into a knowledge-driven economy. Through programmes like the Anusandhan Research Fund, the government is fostering collaboration between academia, industry, and research institutions to drive innovation across sectors.

Global challenges will make policy making a tightrope walk for developing nations

25. Emerging economies, including India, face the challenge of balancing growth aspirations with the need for prudent economic management amidst global uncertainties. In the current global landscape, characterized by both economic uncertainty and technological disruption, policymakers must carefully navigate the path between growth and stability.
26. The energy transition is a prime example of this delicate balancing act. As India works to meet its energy demands, it must also contend with the need to reduce carbon emissions while adapting to the consequences of centuries of legacy emissions by developed countries. The shift towards renewable energy sources, while essential for long-term sustainability, must be managed in a way that ensures energy security and affordability for all citizens. India’s energy policies will therefore need to strike a careful balance between environmental responsibility and economic growth.
27. Furthermore, India must continue to strengthen its position in the geopolitical landscape. As the world undergoes a realignment of power dynamics, emerging economies like India would need to navigate complex international relationships. This would require a nuanced approach to diplomacy, where economic interests are balanced with strategic concerns.
28. As countries look inwards, globally there is the added risk of regress towards de-industrialization. The goal of re-balancing in strategic sectors is a lofty one for several emerging market economies, especially in the context of higher import prices on account of rising tariffs, lesser Ease-of-Knowledge-and-Technology diffusion across borders and possible supply disruptions to key commodities and resources. The fiscal costs to experimenting in industries where a natural comparative advantage is not yet visible also mean that other developmental priorities could be compromised. EMEs must walk a tightrope as the upsides to developing resilience in strategic sectors is high but the downsides can come at the cost of attaining developmental goals.
29. Another key challenge for India is managing the social impacts of technological change. The advent of new technologies is likely to have a profound effect on labour markets, particularly for a country like India with its vast and youthful workforce. While technology offers immense potential for boosting productivity and innovation, it also poses risks to job security, especially for low-skilled workers. The Government is therefore focussed on fostering skills development and education to ensure that our workforce is equipped to thrive in the digital economy.

Concluding Remarks

30. By 2047, as India celebrates 100 years of independence, we will have the chance to define a new era of prosperity—not just for our own citizens but for the global community as well. India’s role in the world is expanding, and we stand ready to engage constructively with the international community, sharing our innovations and contributing to global peace and prosperity.
31. The coming decades will be defined by how effectively India manages its demographic dividend, strengthens its global partnerships, and navigates the complexities of a rapidly changing world. While there are challenges ahead, there are also abundant opportunities for India to lead the way, not just in economic terms but in shaping the global discourse on technology, sustainability, and inclusive growth.

Footnotes:

1. https://www.imf.org/en/Publications/WP/Issues/2024/04/05/Changing-Global-Linkages-A-New-Cold-War-547357
2. ibid
3. https://www.price360.in/publication-details.php?url=75-jump-in-incomes-of-poorest-households-postcovid
4. https://www.price360.in/publication-details.php?url=level-of-indias-income-inequality-196768-to-202223