India on path to become third largest economy in world

India is likely to become the third largest economy in the world by Fiscal Year 2028, two years earlier than initially predicted, showed the International Monetary Fund (IMF) World Economic Outlook database. 

Accordingly, India will only be behind the United States of America and China and overtake Germany and Japan in the process.

The IMF also expected India to overtake the economy of the UK this year to become the fifth largest economy.

However, In its July 2022 report, the IMF had pegged India's GDP growth for 2022 at 7.4 per cent. The IMF’s latest projection which was released on October 11 said India's GDP growth is projected lower than the 7 per cent growth pegged by the Reserve Bank of India (RBI) for the financial year 2022-23. However, despite the slowdown, India would remain the fastest-growing major economy.

Meanwhile, IMF Chief Economist Pierre-Olivier Gourinchas said that India's economy is doing fairly well but additional monetary tightening is required.
India had grown at 8.7 per cent in the 2021-22 fiscal year (April 2021 to March 2022).

On October 11, Gourinchas said India has been doing very well in 2022 and is expected to grow fairly robustly in 2023. “We expect a growth rate at 6.8 per cent for this year, and the projection for the country is 6.1 per cent for the next year," Gourinchas told reporters at a news conference held to release the World Economic Outlook report.

Gourinchas’s thoughts were shared by IMF Director of Asia and Pacific Department, Krishna Srinivasan, who said, “when everyone is slowing down in terms of economic growth, India has not remained unimpacted, but is doing better and is in a relatively bright spot compared to other countries.”

He said the global conjuncture is the overarching problem and the economic growth was "slowing across many parts of the world even as inflation is rising".

"We expect countries accounting for 1/3 of the global economy to go into a recession this year or the next. And inflation is rampant. So that is the overarching story. Almost every country is slowing. In that context, India is doing better and is in a relative bright spot compared to the other countries in the region," Srinivasan said.

Decisions taken by the central banks and Asian economies to address inflation, the ongoing war between Russia and Ukraine and slowed down economic growth in the region itself have led to slow economic growth of India.

The IMF said not only India but also the world will experience an overall slowdown in the next year owing to the impact of the Russia-Ukraine war, tightening monetary conditions globally, the highest inflation in decades, and lingering effects of the pandemic.

Meanwhile, Indian Finance Minister Nirmala Sitharaman who was in Washington DC, US said last week that economic growth will be among the top priorities of the government in the next year’s Budget.

She said the growth priorities will be kept among the top priorities and inflation concerns will be closely looked at and attention will be paid to sustaining the momentum that the Indian economy has got coming out of the COVID-19 pandemic.

The Finance Minister said the upcoming budget will be a carefully structured budget, one in which the growth momentum of the Indian economy will be sustained.

Responding to a question on India`s short-term growth prospects over the next year or two, she said the aim of the government is to make the Indian economy far more robust with infrastructure framework ready not just roads in hopes but also the digital infrastructure, financial inclusion so that everybody has an access to a bank account.

Further speaking on India's economy's short-term prospects, the finance minister pointed to risks that are "extraneous" to the Indian economy.

"They are all things happening outside which are definitely hitting us. And we are every now and then understanding the intensity of this and responding to it. Energy, fertilizer prices. Energy, not just the price, but also the availability. The risks to sourcing of energy. All these challenges, which are not in the medium term, not in the long term, but also in the short term," she said.

Meanwhile, the Reserve Bank of India (RBI) yesterday (17) said the economic activity in India has remained resilient and is poised to expand further, though aggressive and internationally synchronised monetary tightening has further weakened global economic prospects.

In the latest issue of RBI’s monthly Bulletin, a group of RBI officials led by its Deputy Governor Michael D. Patra wrote an article and said acceleration of domestic demand as the contact-intensive sectors were experiencing a bounce-back was the reason behind.

Looking ahead, India was poised to consolidate and accelerate the recovery over the rest of the year, they said, analysing various aspects of the economy.