India to grow at average 6.7% per year from FY24 to FY31: S&P Global

Optimistic about the economy’s potential, S&P Global expects India to grow at an average 6.7% per year from financial year 2023-24 (FY24) to FY31 with capital expansion seen as a dominant driver of growth. This will catapult GDP to $6.7 trillion from $3.4 trillion in fiscal 2023, it said in a report, adding that per capita GDP will rise to about $4,500.

“India has come out of the pandemic reasonably well, with GDP growth of 7.2% in fiscal year 2023,”said the report titled Look Forward: India’s Moment by S&P Global. “Our answer to the sustained growth question is a conditional ‘yes’,” it further said.

However, a higher share in manufacturing and improvements in labour force would be key to this, it said.

For the current fiscal, the agency expects the Indian economy to grow by 6% due to a global slowdown and the lagged effect of policy rate hikes by the Reserve Bank of India. Even so, India will be the fastest growing economy in the G20.

While the government has played a key role in boosting investments, the report said it expects the Indian private sector to gradually increase investments given healthy corporate balance sheets. “We expect capital to contribute 53% of India’s 6.7% average GDP growth through the end of the decade,” it said.

DK Joshi, Chief Economist, Crisil said private sector will be the next player in investments. “The government is pushing the investment strategy after the pandemic. But slowly public investment will peter out as they must be mindful of fiscal deficit targets,” he noted.

While the private sector is not very aggressive in investments as of now due to global uncertainty and the backdrop of the general elections, Joshi outlined five factors for revival of private investments going ahead. These include the healthy balance sheets of large and mid-sized corporate, the interventionist investment strategy of the government, such as the production linked incentive scheme as well as increasing capacity utilisation across sectors.

However, success will ultimately depend on India’s ability to reap its demographic dividend and increase labour force participation, including skilling, boost private investment with structural reforms in land, logistics and labour and increase competitiveness driven by foreign direct investment. Geopolitics could provide considerable tailwinds, it further said.

“India’s short term economic growth will stand on the shoulders of its 678.6 million strong labour force,” the report said, adding that getting more women to enter the labour force will be pivotal for the future growth as only 24% were participating in 2022.

It also highlighted that the country’s ability to become a major global manufacturing hub will be a paramount test for its economic future for which a strong logistics framework will have to be developed.

“India has immense opportunity to increase its share of global manufacturing exports, and the government is seeking to raise manufacturing to 25% of GDP from 17.7% by 2025,” it said.

The report also highlighted that digital infrastructure is another potential driver of high growth.