India's Economic Renaissance

MINHAZ MERCHANT IS THE BIOGRAPHER OF RAJIV GANDHI AND ADITYA BIRLA AND AUTHOR OF THE NEW CLASH OF CIVILIZATIONS RUPA, 2014). HE IS FOUNDER OF STERLING NEWSPAPERS, WHICH WAS ACQUIRED BY THE INDIAN EXPRESS GROUP

- Minhaz Merchant

WILL INDIA'S ECONOMY slow in 2023? The consensus: 2022 was an outlier with GDP growth nudging seven per cent, the highest among major economies. Even the normally conservative World Bank upgraded its forecast for Indian economic growth in 2022 from 6.5 per cent to 6.9 per cent. But according to most projections, Indian GDP growth in 2023 will sag to six per cent or lower. There are three reasons advanced for this pessimistic outlook.

One, the Russia-Ukraine war will grind on relentlessly, exacerbating trade disruptions. India's merchandise exports, which account for around 12 per cent of GDP, could be severely affected.

Two, recession in the West will trigger cuts in information technology budgets among large US and European firms, causing a slowdown in India's bellwether infotech sector.

Three, the fall in rural demand across domestic sectors, especially FMCG, allied with inflation will dampen consumption and lower overall economic growth.

Some of these concerns are valid though overstated. As Sanjeev Sanyal, a member of the Prime Minister's Economic Advisory Council (PMEAC), notes, India's economy can plausibly grow at nine per cent a year. He said at a recent G20 conclave: "We can sustain a growth rate of 9 per cent for many years."

The resilience of the Indian economy was demonstrated throughout 2022 by strong growth despite a spike in the price of crude oil. In February 2021, a year before the Russian invasion of Ukraine, oil was priced at $62 a barrel. On 6 March 2022, with the Russia-Ukraine war intensifying, crude peaked at $129 a barrel before moderating to $76 a barrel in December 2022 as the Chinese economy slowed. India's annual crude oil import bill, assuming an average price of $80 a barrel, is over $120 billion. While Indian officials have done well to negotiate deep discounts with Russia, the relatively high cost of crude has widened the trade deficit.