If the number of JCB diggers, excavators and cranes on the skyline is an effective economic indicator, then India is doing well. The construction vehicles are busy in India at the moment, and are part of the government’s multi-billion-dollar spending plan to boost the country’s infrastructure. This is just one of the observations of Amit Baraskar, Vice President and Head – Treasury, at Thomas Cook (India) Limited, and one of the reasons he is positive about India’s prospects for its economy.
India is currently riding a wave of optimism and is bouncing back from the impact of the Covid pandemic. Since then, the economy has been growing rapidly, albeit from a lower base. Swarup Gupta, EIU Lead Analyst for Financial Services notes that 2022 was a good year and in 2023 the growth levelled off. Now, he says, “India is on a more stable growth trajectory.” Even better, India is expected to be one of the fastest-growing economies in the world this year. Gupta notes that this growth is likely to continue, and the EIU’s forecast to 2028 puts the country on a solid trajectory. There are a number of reasons for this, says Gupta, including a number of reforms to boost the country’s logistics – and associated infrastructure development – and an emphasis on manufacturing.
It’s not just Baraskar and Gupta who are positive. Recently, S&P Global Ratings revised its sovereign rating for India from stable to positive, which was put down to the country’s robust economic expansion. “We expect sound economic fundamentals to underpin the growth momentum over the next two to three years,” the ratings agency stated in its update.
Positive indicators
Madan Sabnavis, Chief Economist, Bank of Baroda also tells Treasury Today Asia that there are reasons to be bullish about the Indian economy. He expects growth to be in the region of 7.5% to 7.8% in 2025, which will be equivalent to 2024’s figure of 7.6%. Sabnavis notes that during the Covid period, India registered negative growth of 5.8% for 2021. “Since then there has been a smart recovery with the substantial improvement being in corporate performance as well as the small and medium enterprises (SMEs), which have virtually returned to the pre-Covid state,” he says.
In India’s banking sector, the banks are in a good position, are well-capitalised and gross non-performing assets are around the 3% mark, adds Sabnavis. “Banking parameters like credit and deposits have shown traction and are in a take-off mode,” he says.
Meanwhile the government has managed to bring down the fiscal deficit level quite rapidly, explains Sabnavis. “The fact that the government did not go in for any exceptional largesse during the pandemic meant that it has been easier to roll back along the fiscal prudence path. This is unlike the West where the quantitative easing has been on and becomes a little more difficult to roll back. More importantly the push given by the government on capital expenditure has helped to revive overall investment even while private investment lags,” says Sabnavis.
These positive signs come in the context of the government’s wider ambitions on the global stage. Baraskar previously has spoken about India’s aim to be a top global economy, and he comments that India continues to be on track with that plan.
After a weeks-long election process, Prime Minister Narendra Modi is expected to continue with the goal of making India a developed country by 2047, which was a promise dubbed ‘Viksat Bharat 2047’. This ambition may seem lofty and vague, but the BBC reported recently how the prime minister has been laying the groundwork for an economic boom ever since he first came to power in 2014.
Baraskar commented in the previous interview that India was expecting to be the third-largest economy in the world by 2028. Given its current trajectory, he comments, that looks achievable and there are projections that India could be a US$4.3trn economy by 2026. All the economic indicators point to unprecedented growth for India for the years ahead, says Baraskar. He compares this to the period of hyper growth that China experienced between 2007 and 2012.
Other signs of India’s economic ambitions abound, including the Gujarat International Finance Tec-City (GIFT) special economic zone (SEZ), which has been developed and has ambitions to be a major global financial centre, as well as a smart city with state-of-the-art infrastructure.
There are many other reasons that observers are excited about the prospects for the Indian economy. Sabnavis points to the positive sentiment that also extends to consumers. “With inflation coming down, we do see consumption growing at its trend rate of 10-12% unlike the single digit growth witnessed last year. Given the size of the market, this is really big. Such revival in demand for services like tourism and hospitality has provided a fillip on one side, and we expect consumerism to pick up soon provided we have a good monsoon,” says Sabnavis.
Shifting supply chains
India is also benefitting from a shift in global supply chains and the need for multinational corporations to diversify their production away from China. This has been a major boon for India, which Treasury Today Asia has previously reported on before. India is well known for its focus on services and IT and now there is a shift towards manufacturing. In a recent report, CNBC quoted Adit Jain, the founder of market research firm IMA India, as saying: “When we look at global value chains, two and a half decades ago, all of it [in India] was focused on shared services, back office accounting, grunge work that could be cheaply done because we have a large, skilled, educated population. But then, slowly, businesses started realising that, hang on, we can actually do a lot more; we can set up high-end research and development.” This echoes the view of experts at McKinsey who estimate that most major multinationals have more than half of their global engineering and research and development based in India.
The classical model of economic development is for countries to emerge from agrarian to industrial societies with a focus on manufacturing. From there, they develop into services. India leapfrogged this manufacturing stage, explains Gupta and benefitted from the success of its technology giants like Infosys and WiPro and its IT services and outsourcing industries grew out of that success. However, Gupta says, the government has come to the realisation that it makes sense for certain goods to be manufactured on home soil. One such example is semiconductor chips which, for strategic reasons, the government has focused on manufacturing onshore.
Another reason to be optimistic about India’s economy is its digital transformation, which has taken many forms, including its identity scheme and its digital payments infrastructure, as well as the digitisation of government services. In a population of approximately 1.4 billion people, this is no mean feat. With the country’s digital transformation, the poorest people in the interior regions can now get access to government and financial services, including United Payments Interface (UPI) – the real-time payments system – as well as the ability to pay via QR [quick response] codes.
With the move to digitised government services, and the adoption of the universal ID, “There has been reduced corruption and it has curbed the leakage from welfare schemes,” says Gupta. Nowadays, benefits can be transferred digitally directly into the accounts of beneficiaries – a much more efficient process than paper-based methods and cheques. Previously, Gupta estimates that only 20% of payments were getting to the intended beneficiary; now it is more in the region of 95% to 100%, he says. “Digital governance has saved 1.1% of GDP,” Gupta adds.
For multinationals operating in India, this means they need to be digitally savvy to connect into the infrastructure that is now readily available – for payments as well as the management of data processes that have now been digitised.
Net-zero goals
While India has been building the infrastructure that is necessary for a digital economy, it has also been eyeing its climate goals, with an ambition to be net zero by 2070. Mark Whelan, for the Institutional division at Australian bank ANZ, commented after a recent visit to India that the country is only just getting started with its ambitious economic goals. There are a number of noticeable improvements underway, he wrote in a recent piece. On the topic of environmental, social and governance (ESG) goals, Whelan noted how India has benefitted from significant investment in renewable energy. In 2024, he writes, more than 70% of India’s new power generation came from renewable sources. This in turn is providing opportunities for multinationals in India.
Foreign direct investment
Many observers are expecting multinationals to also benefit from an inflow of foreign direct investment (FDI). Sabnavis expects FDI flows to increase as investment opportunities are leveraged. He also notes that the FPI [foreign portfolio investment] flows to government debt will increase as India’s bonds get included in the J.P. Morgan bond index (in June) and Bloomberg (in January 2025). “Therefore, positives can be seen on our balance of payments with fundamentals keeping the rupee steady,” he says.
In terms of its FDI, EY notes that India has seen a consistent rise in the last decade. Despite the impact of the pandemic, there was an inflow of US$84.8bn in FY2021-22. EY expects this figure to increase and estimates that the country could attract inflows of US$475bn in the next five years. In a survey of business sentiment, the professional services firm found that 71% of those surveyed said they planned to invest in India in the next three years. Meanwhile, 96% were optimistic about India’s growth prospects. The positive sentiment was put down to the opportunities from India’s growing consumer market, and accompanying domestic consumption. Also, many are optimistic about India’s potential given the shifting global supply chains where multinationals are now favouring manufacturing in India over the likes of China. Many are also enthused by the country’s digital transformation.
All these factors bode well for India, and for corporate treasurers this means there will be plenty of growth and investment as foreign companies ride this wave of optimism, which in turn will drive India’s trade and manufacturing. Also, this comes at a time when India has also been asserting itself on the international stage – amid much geopolitical uncertainty – as a nation that seeks peace and cooperation. These efforts, comment Baraskar, will aid India’s trading relations and help it in its ambitious economic goals.
