Will WEF chief's prediction on Indian economy come true?

Last week, the global economy received a big jolt when Germany slipped into recession. Global financial institutions, including the International Monetary Fund (IMF), have been saying that all is not well with the world economy. In January this year, the IMF projected that the global economy would grow at 2.9 per cent, down from 3.4 per cent in 2022 and a high of 6.1 per cent in 2021.

In its April 2023 forecast, the global financial body further cut its 2023 growth projection for the world to 2.8 per cent. In advanced or developed economies, the growth fall will be more pronounced, decelerating to 1.3 per cent from 2.7 per cent in 2022. It has also warned that there are ample chances of this year's global growth slipping to 2.5 per cent if the financial sector stress goes up. In such a scenario, the advanced economies will see lower than one per cent upswing.

But why is the global economy stuttering? The aftershocks of the Covid-19 pandemic and the Russia-Ukraine war seem to be key reasons for the global slowdown. The first major victim of these downsides is Germany, the world's fourth largest economy and Europe's biggest economy. It registered an economic contraction of around 0.4 per cent in the six months up to March 2023. Technically, an economy is in recession if it contracts for two consecutive quarters or six successive months. Higher energy prices triggered by the Ukraine war took a heavy toll on Germany and pushed up inflationary pressures, thus sending its economy into a tailspin. Other European economies will also face similar headwinds. The US, the world's largest economy, is also not in good stead with its debt burden piling up.

According to the IMF, in all likelihood, the slowdown in global economic growth will bottom out in 2023 and the growth curve will start inching up once again from 2024 onwards. Will that happen? As things stand now, the world may take longer to bounce back and register incremental growth.

In this backdrop where dark clouds are hovering over advanced economies, how will the Indian economy fare? All the global financial institutions and rating agencies are unanimous when it comes to the Indian economy. They say India is now a bright spot in the world economy rattled by slowdown pangs and it will continue to be so in the coming few years. A couple of days ago, US financial services major Goldman Sachs raised India's growth forecast to 6.3 per cent for 2023. This projection is higher by 30 basis points when compared to its earlier forecast. The country's services sector is expected to play a key role in this higher growth trajectory.

But a bigger optimistic take on the Indian economy came from BorgeBrende, the president of World Economic Forum (WEF). Brende, who was on a short visit to India last week, said in an interview, that India is poised to post exponential economic growth in the coming years.

According to him, India is experiencing what he calls the 'famous snowball effect' which will result in more investments that will in turn generate more jobs. Snowball effect is a process that starts small and becomes bigger on its own, benefitting all stakeholders, as time goes by. This can be explained with the concept of the rolling of a snowball down a snow-clad hillside. As it rolls, the ball will gather more snow, thus gaining more mass and surface area, as it rolls along.

Brende, a former Norwegian Minister of Foreign Affairs, Trade and Industry, feels that there is less red tape and better investment climate in India now, thanks to the reforms initiated by the Narendra Modi government. He has also said that the 'digital revolution' is happening in the country. All these factors made him believe in India's growth story and he is 'very bullish and optimistic' about the Indian economy. Furthermore, he rated the Indian startup ecosystem as broad-based one which other developing countries could take inspiration from.

To some extent, Brende is bang on. The Modi government's increasing focus on infrastructure and manufacturing, ever-expanding gig economy and rising levels of digital economy are fueling the country's overall economic growth. The Goods and Services Tax (GST) regime, which kicked off during the first term of the Modi government in July 2017, accelerated the formalisation of the economy, thus pushing up tax revenues. In April this year, the GST collections reached a record level of Rs 1.87 lakh crore. Of course, the tax burden has significantly increased on people and compliance burden has also reached stratospheric levels post the GST. Though GST is boosting the economy, the central government should address these two key nagging issues to make the new indirect taxation regime less painful and, at the same time, more meaningful.

Brende also underlined the need for India to continue its reform agenda as structural changes it made thus far had been yielding good results. Global rating agency Moody's, in its report last week, also warned India that policy barriers would hamper investments in the country. It batted for less bureaucracy to make India more attractive for foreign investments. It said that despite all these issues, India would be the fastest growing G-20 economy for the next few years.

These positive vibes augur well for our economy as the country heads for General Elections in 2024. But there is a lot more to be done for India to become a developed nation by 2047 as envisaged by the Modi government. From infrastructure to innovation, the country lags behind by miles in almost all sectors, segments and spaces.

With China facing multiple hurdles post the Covid pandemic, India is well-placed to replace the communist country as a manufacturing hub for the world and also gain traction in other spheres. But it has to seize the opportunity with well-calculated strategies and moves. India has to bring in more proactive policies irrespective of who is in power. Only then can it aspire to become a developed nation.

The trillion dollar question now is whether the WEF chief's prediction on the Indian economy will come true. It will if Indian rulers - present and future- play their cards well. Will they do that?