India’s Rise: Growth Scenarios
India’s Prime Minister Narendra Modi at the start of his second term has laid out a vision of economic growth for India that would see the country’s GDP nearly double from US$3tn today to US$5tn within the next five years. Achieving this target will require a GDP growth of approximately 8%, substantially higher than India’s current growth, but well within its growth potential of 10% or more at this stage in its growth trajectory.
As highlighted in previous Signs of the Times, India’s growth is fundamentally being driven by a series of macro drivers, including its large and growing workforce, rapid urbanisation, mass technological adoption, financial inclusion and growing (mass-) consumerism, factors that are largely independent of government policy and provide a stable basis for the country’s long term economic growth. Despite these independent drivers, India’s growth is of course not decoupled from that of the rest of the world, and remains subject to external supporting events and dislocations, with the world as a whole entering a period of increased volatility and decreased growth. Accordingly, while the achievement of India’s targeted US$5tn economy is not in doubt, the timeline on which it will occur potentially is. India’s leaders will need to focus their efforts on supporting policies removing roadblocks to the independent drivers and on avoiding being derailed by internal dislocations and countering external dislocations. The first Modi government (2014-2019) has demonstrated that it can successfully deliver the first of these two through the implementation of structural reforms that drove GDP to up to over 9% at its peak. Delivering an average growth rate of 8% for a sustained period in the face of macro-economic headwinds, however, will depend on the government’s ability to continue to press ambitious reforms.
This month’s Sign of the Times examines India’s current economic growth outlook and challenges, developing three potential future growth scenarios, each driven by assumptions around the level and success of reforms implemented. The difference between these scenarios is stark when seen over a ten-year period; a comprehensive reform program could see India become a US$10tn economy by 2030, while a muddled response would lead to an economy of only at US$7tn, over the same period.