India shining a possibility, but presupposes reforms

At the risk of sounding clichéd, we can claim that India stands at the cusp of an economic resurgence, poised for a trajectory of not just high growth but also a decent employment generation. A convergence of factors, both domestic and global, sets the stage for the economy’s take-off. With fiscal discipline in place, infrastructure development visible and growth prospects brightening (as per domestic and international experts), India finds itself at a happy juncture where seizing the moment is imperative for long-term success.

A main driver of economic momentum is the falling fiscal and revenue deficits. The fiscal deficit declined from 6.4 per cent in 2022-23 to 5.8 per cent in 2023-24, while the Budget estimate was 5.9 per cent. For the current fiscal, it has been pegged at 5.1 per cent. In this period, the revenue deficit is expected to almost halve—from 3.9 per cent in 2022-23 to two per cent in 2024-25. The Centre’s unwavering commitment to fiscal discipline has yielded rich dividends, leading to macroeconomic stability and investor confidence.

The HSBC’s flash India Composite Purchasing Managers’ Index (PMI), which reached 14-year high in May, underlines this fact. “The composite PMI continued to rise in May, reaching the third strongest reading in nearly 14 years, backed by a sharp pick-up in the service sector,” Pranjul Bhandari, HSBC’s chief India economist, has opined. This has reportedly reflected in employment generation across the private sector, the highest since September 2006. The number of services jobs created in May is at a 21-month high. Apparently, the tide seems to be turning on this count.

With pragmatic fiscal management and massive capital expenditure, the government has created an environment conducive to sustainable growth across sectors. The anticipated higher growth rate in the foreseeable future augurs well for economic development. With the global economy recovering from Covid and its baneful effects, India can capitalize on the emerging opportunities by leveraging its demographic dividend.

The ‘China plus’ strategy of MNCs can amplify India’s economic prospects. Eager to reduce their dependence on China, many MNCs are diversifying their supply chains and trying to shift manufacturing to other countries, including India. This offers our country a great opportunity to attract foreign direct investment (FDI) and technology. If India is able to provide a good business environment to them by streamlining regulatory processes, it can become a hub for manufacturing, innovation and services.

This will not only help us integrate into global value chains but also generate jobs and boost economic growth. The Reserve Bank of India’s announcement of its highest-ever dividend of Rs. 2.11 lakh crore to the government will give the latter additional fiscal space to further improve the fiscal situation and invest in priority areas. The next government must give impetus to the gathering momentum by pursuing bold reforms, including in areas like labour, taxation, land and agriculture. The future may look promising, but at present all is not well.

Net FDI flows, for instance, dropped 62.17 per cent to $10.58 billion in 2023-24. The next government must ensure that fundamental changes are made, and made fast, to improve the situation. HSBC’s PMI seems to be the silver lining. It should not end up as a mirage.