India at forefront: Unleashing potential in a complex world
Article by Surojit Shome, Managing Director and CEO, DBS Bank India
India's economy is showing resilience and stability amidst global uncertainty, with a projected 6.5% growth forecast for FY24. The government aims to become the second-largest economy by 2047, focusing on infrastructure development, commerce and connectivity, sustainable development, financial inclusion, and digitalization. India's initiatives in these areas have already yielded positive results and can serve as models for other countries. Cooperation and collaboration among stakeholders will be crucial for India to realise its growth potential.
India stands at a unique moment in its history. At a time when countries around the world are facing immense uncertainty and volatile economic conditions, India stands out as an island of resilience and stability.
The most recent monetary policy report highlighted a 6.5% growth forecast for FY24, one of the strongest amongst regional peers and expected to come on the back of 7.2% growth in FY23. The Rupee has also remained largely resilient against a backdrop of volatile emerging market currencies. FPIs (Foreign Portfolio Investors) have funnelled US$~17 billion into equities and US$~2 billion into debt this fiscal year. Indian capital markets have also remained bullish, as the indices hit lifetime highs in July this year.
The country’s consistent performance, coupled with pragmatic policies, has raised the confidence of domestic and global investors, generating a positive feedback loop.
Moving to a higher growth path
The Government of India has earmarked the next few decades as a period of action and momentum beyond the 75th year of Independence and right up to the centennial year in 2047. The vision for the country is reflected in the goals set out for this acceleration. A strong financial sector, including a well-capitalised banking system, is also helping India weather storms such as the global pandemic and accelerate its dream of becoming the second-largest economy by 2047. As India marches forward, key development pillars must get their due focus.
The government has made provisions for capital expenditure of Rs 10 lakh crore for infrastructure development in the Union Budget 2023 to support the push towards a US$5 trillion economy. Early action to develop robust infrastructure has helped India sustain an average GDP growth trajectory of 5.5% over the last decade. Given the scale of infrastructure development anticipated in this period, the Government also needs to support financial institutions to overcome roadblocks. This collaboration goes beyond just capital and includes risk mitigation tools like hedging instruments and insurance.
Commerce and Connectivity
India’s rich natural resources, populous workforce, and technological advancements are expected to drive a 3% share in world exports by 2027 and 10% by 2047. Initiatives such as establishing the Indian Trade Portal and Service Exports from India Scheme (SEIS) to promote the export of services are also providing greater impetus to the sector. Furthermore, the bilateral and multilateral trade treaties, the increased use of rupee-trade and digital currency initiatives will help grow India’s share of global trade. Several foreign trade agreements (FTAs) with Asian countries and beyond have been implemented, which will boost regional trade flows. Commerce, of course, is not limited to large corporates alone. MSMEs currently contribute 33% to India's GDP, making them a significant driver of India’s growth ambitions. Their agility, creativity, and innovation are advantages for a growing nation. With increased financial empowerment and government initiatives such as Startup India and Atmanirbhar Bharat Abhiyan, MSMEs are projected to contribute US$1 trillion to exports by 2028.
Sustainable Development and Financial Inclusion
Today, India is the third largest energy consumer in the world. To meet the target of setting up 175GW of renewable energy, substantial investment will be required. Beyond technology and supply chain aspects, capital providers are critical enablers of a country's sustainable business transition and can cater to a variety of goals. Private equity players and banks, through different types of responsible financing products such as green funds, green deposits, green loans and blended finance, will play a major role in meeting these goals.
They can also access global best practices to help customise these innovative products for India, enabling businesses to capitalise on the opportunity behind sustainability while transitioning to low-carbon models and driving the country towards a more balanced, prosperous future. Additionally, we also need a well-developed bond market for mobilising funds for clean energy projects.
Financial inclusion remains an important mission for the world’s most populous country. India's initiatives, focused on technology-enabled financial inclusion through various schemes and programs, are already showing significant results. These innovations are also being studied by several countries looking to learn from the successful Indian model.
Digitalisation has been a significant catalyst in India’s growth journey. The deep penetration of telecom & internet services and the Digital India Stack has revolutionised public and private infrastructure. Unified Payments Interface (UPI) rails have enabled exponential growth in digital payments – India now accounts for more than 45% of global digital payment transactions. Other initiatives, such as the Account Aggregator Framework, OCEN (Open Credit Enablement Network) and ONDC (Open Network for Digital Commerce), show commendable early results. Continued efforts on the digitalisation pathway, while enabling the accessibility and adoption of these new platforms, will be critical to sustain momentum.
India has all the elements needed to grasp these opportunities and fulfil its growth potential. Maintaining the current pace of growth while being inclusive of all stakeholders and the environment will be a careful balancing act. This will require active and enlightened cooperation amongst the people, leaders, and institutions - both domestic and global.
As featured in The Economic Times