India's economic growth has outperformed the global average, achieving robust expansion with relatively low inflation, according to a report by Barclays (LON:BARC) on Thursday. The country is expected to remain the fastest-growing major economy in the near term, and could potentially overtake China as the biggest contributor to global growth if it targets an 8% growth rate post the general elections in 2024.
Barclays India's report titled 'India: A breakout moment' suggests that if India raises its growth closer to 8 percent over this period, it would be poised to become the biggest contributor to global growth, closing the gap with China. "While 6 percent growth would raise India's global relevance, targeting 8 percent could see it overtake China," the report stated.
Rahul Bajoria, Head of EM Asia (ex-China) Economics at Barclays, said that India is set to remain the fastest-growing major economy for some time. However, post general elections, the policy may tilt towards even faster economic expansion. The study pointed out that India is likely to become an $8 trillion economy by 2030 if it achieves a higher growth rate, compared with the $6.6 trillion estimated at 6.1% growth by the IMF.
The Indian economy expanded 7.8% in the first quarter of FY24. However, experts indicate that growth is likely to slowdown in the coming quarters. A poll of 22 economists had put the median growth estimate for FY24 at 6.2%.
Barclays believes that macro stability has dominated India's growth ambitions since the start of the Ukraine-Russia war. Policymakers have aimed for relatively faster growth alongside macro stability since recovery from the pandemic began, and this stance is expected to continue until general elections are held in Q2 2024.
The impending general election has been widely flagged as a risk factor in terms of economic outlook. However, Barclays believes increasingly firm electoral mandates and no major disagreement over economic policy on growth within the polity in India reduces the risk of any dramatic shift in policy direction.
Factors contributing to India's economic growth include clean balance sheets, high level of foreign reserves, manageable current-account funding requirements, broadly stable inflation and favourable demographics. An increase in nominal savings rate, faster workforce growth, higher female labour force participation and more exports will be needed to sustain this growth for the rest of the decade.
However, despite these gains, Barclays pointed out that India would still lag behind China in terms of per capita income and would need more years to catch up. It also noted that global growth risks, financial stability issues in China and risks of geopolitical conflicts posed a constraint to India’s growth.
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