Moody’s completely changed its statement in its Global Macro Outlook on India’s GDP growth in the first quarter (April–June) of 2023–24, saying, “Strong service expansion and capital expenditures propelled India’s real GDP growth to 7.8% in the second quarter (April–June) from a year ago. We have accordingly raised our 2023 calendar year growth forecast for India from 5.5% to 6.7%”.
When we compare, India has registered a growth rate of 7.8% in the first quarter (April–June 2023) while China has a growth rate of 6.3%, Indonesia at 5.17%, Russia (after several sanctions) at 4.9%, the US (2.1%), Japan (2%), and South Korea have very low growth rates.
India’s policymakers must observe that, whenever the financial year starts, its first quarter growth rate is usually high. There was a huge jump in the Q1 of 2021–22 (when we were recovering from COVID-19), which was 21.6%, followed by a similar growth rate of 13.3% in the Q1 of 2023–23, and still the Q1 of 2023–24 shows a massive growth rate of 7.8%. And the main challenge is whether the growth rate achieved in the first quarter will be continued in the next quarter.
Looking at India’s economic perspective, it can be predicted that India will maintain this. The reason for this is that even at a time when worldwide demand (consumption) and exports are declining, India is registering 7.8% growth, which means that India’s economy is fundamentally strong. This means how long can India continue this kind of growth rate.
“We can achieve a steady 6.5% growth over the remainder of the decade (2020–30), with occasional opportunities for seven plus growths,” said Chief Economic Advisor (CEA) of India V. Anantha Nageswaran. To achieve a growth rate of 7% or more, India will have to undergo massive and radical transformations in the education system.
Based on any IMF or World Bank report, it is observed that the population of the world (China, Japan, or Europe) is falling, while India’s population is about stable, but this population does not have skills. It is very important that the government of India organize various types of skill programmes for a large population in India in the coming years. Without this, it will be difficult for India to achieve its big goal of becoming a $5 trillion economy.
If India must become a $5 trillion economy by 2028, it will have to register at an average growth rate of 7.4%. So, for this, the challenge remains before India. India will have to register a growth rate of 8–8.5% for one or two years; only then is it possible that India will be able to become a $5 trillion-dollar economy by 2028. Since India will exceed Japan and Germany in terms of nominal GDP by this decade (2030), it also must be seen what happens in 2024.
On the one hand, Moody’s and Morgan Stanley have improved their ratings and estimates regarding India, and all global reports suggest that India will grow even more. But, according to the RBI, India’s growth rate should have been 8% in Q1, 2023–24, which is slightly less (7.8%). Looking at the RBI report, the research also identified a few potential obstacles in the distance. Due to below-average rainfall during India’s monsoon season, which lasts from June to October, there are worries that food prices could rise. As of August 29, the India Meteorological Department estimated a 9% rain deficit nationwide, which could have an effect on agricultural production.
Additionally, Moody’s cited the potential for an El Nino event in the latter half of 2023 and early 2024, which would increase the cost of agricultural commodities. Moody’s has reduced India’s growth rate from 6.5% to 6.1% in FY 2024, which will be a challenge for India. Even though a number of experts are concerned about how inflation and unpredictably bad weather may affect overall economic growth, India’s manufacturing, services, and export sectors have seen significant growth in addition to excellent tax collection.
In a recent interview, Union Finance Minister Nirmala Sitharaman predicted that India’s economy would continue to develop strongly, at least through the end of 2023. So, India will have the main challenge of consistently achieving this growth rate to achieve their goal of a $5 trillion economy.