Step aside China: This decade belongs to India, says report
Photo: Collected
Time, comparative advantage and a host of supportive factors are set to propel India as the fastest-growing economy in this decade, alongside southeast Asian countries, as per a report published Monday.
Nomura expects India to register a CAGR of around 6.6 per cent between FY23 and FY30, the strongest growth phase since FY10.
Having already grown at a faster rate than other major economies in the world since the turn of the Covid-19 pandemic, the stage is set for India to replace China as the 'high-flying geese', thereby unlocking its full growth potential, Nomura said.
The 'flying geese' paradigm was originally coined by Japanese economist, Kaname Akamatsu in the 1930s which predicted the rise of Asian economies in the time to come.
With time, the Japanese economy lost steam, only to be replaced by South Korea, Hong Kong and Singapore between 1970 and 1990s. Come 1997, others too lost steam, but China took the lead, and how. It is now 2023, and Nomura's economists say Xi Jinping's China has lost its low-cost comparative advantage which, along with geopolitical headwinds.
Enter, India
With companies looking elsewhere to reduce their reliance on China, it is India and other Southeast Asian countries like Indonesia and the Philippines that have emerged as Asia's new high-flying geese.
As per the JETRO 2022 survey, companies wanting to expand their operations within ASEAN have risen for a second straight year. And more than half of the respondents seek to expand operations in India and Vietnam within the next one to two years.
Though nascent, supply chain systems are evolving and some have gained more than others. Nomura in its report said that the process should accelerate in the next 3-5 years. Asia is likely to benefit the most, led by India and ASEAN.
Structural reforms undertaken by the Indian policymakers in recent years and higher allocation towards capital expenditure capex should help India’s gross domestic product (GDP) growth reach around 6.6 per cent per annum over the medium term, and support the Rupee, Nomura said.
"We see a few reasons to remain optimistic that infrastructure spending and execution will accelerate in the medium term, particularly in India, Indonesia and the Philippines," the agency said in its report.
The report notes that governments in India and parts of Southeast Asia have placed a high priority on infrastructure development and become more strategic around project execution and have been making significant progress.
Following its recent trend, the Indian government in its FY24 budget allocated a record high of Rs 10 lakh crore towards capital expenditure. The Narendra Modi-led central government has ramped up capex spending to 3.3 per cent of GDP from a pre-pandemic average of 1.7 per cent.
Nonetheless, the execution of projects on time remains a concern, leading to cost overruns for the authorities in India. Reasons for time overruns as reported by various project implementing agencies include delay in land acquisition, delay in obtaining forest and environment clearances, and lack of infrastructure support and linkages.
Delay in tie-up for project financing, finalisation of detailed engineering, change in scope, tendering, ordering and equipment supply, and law and order problems were among the other reasons.
As per the government's flash report for April 2023, out of the 1,605 projects, 800 have been delayed (w.r.t original schedule) and 132 have been delayed even further. The average time overrun in these 800 delayed projects was 37.07 months.
The total original cost of implementation of these 1,605 projects was Rs 22,85,674 crore while the cost overrun is expected to be Rs 4,64,917.13 crore.
That said, some experts expect an uptick in project executions, with General Elections 2024 lurking around the corner.
What is working in India's favour
A variety of factors like a stable political dispensation, focus on reforms, a simplification of tax administration, schemes like PLI and ‘friend-shoring’ puts India in a sweet spot over the next decade, says Nomura.
However, a mix of slowing global growth and lagged effects from monetary policy tightening are likely to impede India's growth prospects in the near term,
Nomura notes that banks and corporates in India have ‘significantly’ deleveraged in recent years to clean up clogged balance sheets that had stalled private capex.
India a few months ago pipped China as the world’s most populous country. This includes one of the largest cohorts of youth (below the age of 15) among G-20, while 67 per cent of the population is in the working age bracket.
The central government’s economic survey expects output to increase by at least four times the amount of capex, while the Reserve Bank of India (RBI) expects the dynamic capex multiplier at a peak of 3.25 times in year four.
Source: Economic Times
