Barclays Research has released its latest report, “India’s Breakout Moment,” suggesting that with the right policy mix, India could boost its GDP growth rate to approximately 8%, potentially becoming the largest contributor to global growth by the end of the decade. The report emphasizes the crucial role of self-financed investment and macro stability in achieving this ambitious growth target.
According to Rahul Bajoria, Managing Director & Head of EM-Asia (ex-China) Economics at Barclays, the key to unlocking higher growth lies in increasing the country’s savings pool. Bajoria notes that higher savings need to be endogenous, correlating with a rise in per capita income and fiscal consolidation.
The report highlights several factors that could contribute to a surge in the savings rate over the next decade, including changes in consumption preferences, favorable demographics, and fiscal consolidation. It estimates that the household savings rate could potentially increase by at least 2.7 percentage points by FY30, driven by a lower marginal propensity to consume amid rising per capita income.
Fiscal consolidation measures are expected to reduce public sector dis-savings by around 1.3 percentage points, potentially boosting overall gross savings by 4 percentage points of GDP. This, combined with the government’s aim to cut the budget deficit by FY26, suggests a reduced need for further fiscal consolidation and external financing, maintaining macro stability amid higher growth.
Barclays suggests that India may move closer to a current account balance, reducing the reliance on external capital inflows if it can maintain productivity ratios. The report anticipates a slowdown in GDP growth in Q4 2023 to 6.7%, attributed to a deceleration in state-led capital expenditure. However, this figure is higher than the 4.5% growth recorded in Q4 2022.
The research expects services to continue leading Gross Value Added (GVA) growth, with the industrial sector showing robust performance. Despite a slowdown in construction due to sluggish public capex, the manufacturing sector is predicted to maintain strong growth, supported by improved profit margins.
Barclays emphasizes that domestic demand remains a driving force for GDP, with early signs of recovery in external demand supporting net exports. The report concludes that India’s economic landscape is primed for a significant upswing, provided the right policy measures are implemented.
In Summary:
Barclays Research forecasts a potential surge in India’s GDP growth to 8% by the end of the decade, making it a global growth powerhouse. The report emphasizes the need for self-financed investment and macro stability. Key factors contributing to this growth include a rise in household savings, fiscal consolidation, and changes in consumption patterns. Despite an expected slowdown in Q4 2023, the overall outlook is positive, with services leading GVA growth and robust performance in the manufacturing sector. The report suggests that India’s economic potential is within reach, contingent on effective policy implementation.
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