Opinion Express View: On track to becoming the third largest economy, India needs to seize manufacturing opportunity

The GDP estimates released last week by the National Statistical Office showed that the Indian economy grew at a healthy 7.6 per cent in the second quarter of the ongoing financial year, surpassing expectations. This has reaffirmed optimistic assessments of the country’s medium-term growth trajectory. Alongside, the exuberance seen in stock markets after results of the recently concluded state elections were declared suggests that investors anticipate lower political and policy risks going into the general elections next year. Now, a new report by S&P Global says that the country will be the fastest growing major economy over the coming three years. This relatively high growth, it says, will drive India, currently the fifth largest economy in the world behind the US, China, Germany and Japan, to become the third-largest by 2030. Some analysts, though, expect the country to achieve that mark sooner. These are good signs.

Earlier, the International Monetary Fund, as per its October World Economic Outlook database, had pegged the Indian economy to grow at an average of 6.3 per cent per year between 2023 and 2028. This would translate in the Indian economy growing from $3.7 trillion in 2023 to $5.9 trillion in 2028. Alongside, the country’s per capita GDP is expected to rise from $2,612 to $3,985 over this period. In comparison, the Chinese economy is widely expected to slow down — the IMF projects the economy to average just about 4 per cent per year during this period. In fact, a few days ago, Moody’s Investors Service lowered its outlook for Chinese sovereign bonds to negative as it believes that financial support to regional and local governments and state firms poses downside risks. A slowing Chinese economy means that it may no longer be the driver of growth in the Asia-Pacific.

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As per the projections in the S&P report, India, followed by Vietnam, will be the fastest growing emerging market between 2024-26. These countries, along with others like Mexico, are benefiting from the rearrangement of global supply chains. This ongoing diversification away from China is an opportunity for India to emerge as a major global manufacturing hub. But, central to this is “developing a strong logistics framework”, as per the S&P report. There is a need to upskill workers, and increase the female labour force participation. This, as the report points out, will help India “realise its demographic dividend.”