A majority government post the 2024 general elections may pivot India towards a higher 8% growth, which will help overtake China as the biggest contributor to global growth, according to the latest Barclays research.
“India is sto remain the fastest-growing major economy for some time. However, post general elections, the policy may tilt towards even faster economic expansion… targeting 8% could see it overtake China as the biggest contributor to global growth,” said Rahul Bajoria, Head of EM Asia (ex-China) Economics, Barclays.
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 estimated at 6.1% growth by the IMF. As per IMF, India will become the third largest economy by 2027, when it crosses the $5-trillion economy mark.
An increase in the nominal savings rate, faster growth in the workforce, higher female labour force participation and more exports will be needed to sustain growth for the rest of the decade, Barclays economists stated.
The Indian economy expanded 7.8% in the first quarter of FY24, but 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%.
“A key question is whether authorities can encourage more rapid growth without compromising India’s hard-won macro stability,” Bajoria said, stating that achieving 8% growth consistently has been difficult.
India’s economic growth averaged 8% between 2005 and 2010.
Brighter future
“The more proactive push to increase manufacturing, with friend-shoring, clean corporate and financial balance sheets, better control over inflation, a sophisticated digital footprint and a large infrastructure build-out, should provide an additional stimulus to the economy,” the research noted, pointing to China+1 strategy as a critical reason for optimism around India.
The research predicted that to achieve higher growth, either the investment ratio will have to increase to 2011-12 levels closer to 40%, or capital efficiency will have to improve.
“A nearly 4-5pp increase in the investment-GDP ratio from current levels would have to be financed largely by domestic savings if India wants to retain its hard-earned macro stability,” the research further stated.
Barclays further said that the export share of India relative to the world would need to rise to 4.5-5% and suggested that India needed to focus on human capital to reap demographic dividends.
“A 1 million increase in the workforce could potentially contribute 10bp to GDP growth,” the research noted, stressing the need for more women in the workforce.
Still behind China
However, Barclays pointed that despite these gains India would still lag behind China in terms of per capita income, where it would need still some years to catch up.
“Hence, a later starting point – with at least a 12 year lag – coupled with a still-growing population in India and a much smaller manufacturing and export base, as China’s population drops, means India’s GDP per capita is unlikely to be able to bridge the yawning gap with China any time soon,” Barclays stated.
It also noted that global growth risks, financial stability issues in China and risks of geopolitical conflicts posed a constraint to India’s growth.
“India has significant resource dependencies, especially for critical minerals,” it said.
More important, it pointed to economic populism as a key risk, especially with vulnerable fiscal situation in certain states.
