India's strong demographic dividend and improving business climate offer a golden opportunity for the world's third-largest economy. The country is well placed to tap into the South Asian Association for Regional Cooperation and benefit from its large market size, skilled workforce, and improved infrastructure. However, India needs to address structural challenges such as creating more jobs and reducing poverty rates. Digitalization can help drive economic growth by increasing efficiency in the use of resources in various sectors such as financial services, manufacturing, retail trade, and e-commerce.
The Indian economy has already recovered significantly from the slowdown in 2019, but challenges remain. Private domestic investment and government capital expenditure are likely to increase moderately, while exports are unlikely to return to their pre-GST levels until the end of 2022. E-commerce companies have also been struggling since the rollout of the goods and services tax (GST), which created confusion among consumers as they struggled to understand how it impacted them.
These issues may also be contributing factors behind slow sales growth in India. For example, new car sales had dropped by almost half between December 2018 and January 2019, despite strong GDP growth rates during the same periods. Dr. Rumki Majumdar, an economist with Deloitte India, noted that the difference between real and nominal gross domestic product suggests that inflation has been a persistent problem and the economy has been fighting the challenge of rising prices for a long time now.
Private Domestic Investment, Government Capital Expenditure, and Exports Critical for Recovery.
Private domestic investment, government capital expenditure, and exports will be critical for recovery. In recent years, investment has been weak due to high non-performing assets (NPAs) in the banking sector and global uncertainties. The government's investment plans are expected to support growth. Exports will also play an important role in driving growth. This will be driven by: manufacturing exports projected at over 6% per annum, services exports projected at around 9% per annum, and agriculture exports projected to grow at close to 4% per annum on account of favorable weather conditions.
India’s E-commerce Sector Is Expected to Reach $200 Billion by 2026.
Within a decade of it being liberalized in 2011, India's e-commerce sector is expected to reach $200 billion by 2026. The growth rate of the country's e-commerce market has been 25% per annum since 2017.
The Indian government's policies have helped drive this exponential growth of online retail in India. The introduction of GST and demonetization led to a rise in digital payments, which made online transactions easier for consumers who don't have access to credit cards or debit cards.
India is also home to more than 400 million smartphone users, and over 70% of those smartphones run on Android OS (operating system). This explains why Google Play Store commands 90 million monthly active users in India, compared with just 30 million monthly active users globally.
India Is Well-Positioned to Play a Key Role in the Global Manufacturing Supply Chain.
India is well-positioned to play a key role in the global manufacturing supply chain. The country has a large and growing workforce, consumer base, middle class, and economy. India also has one of the highest population densities in the world, with more than 1.3 billion people living in an area slightly smaller than Europe’s biggest country – Germany. It’s no surprise that companies like Amazon and Patanjali have started their own brands in India or set up their own production units there.
It's not just foreign companies who are reaping benefits from this trend. Domestic businesses like Flipkart (online retail), Sun Pharma (pharmaceuticals), and Patanjali Ayurveda (natural products) are also thriving, thanks to their ability to cater to local demands at competitive prices.
India Has Become Attractive to Global Automakers.
India is the world's third-largest car market, with a low penetration rate of around 15%. In fact, it's a major challenge for global automakers to find new consumers in this country. According to some experts, India's automotive market will grow by 7.5% annually over the next two decades.
However, there are some obstacles that may prevent the country from capitalizing on its potential, such as high import duties and labor costs. If India can overcome these hurdles and increase its manufacturing base while removing trade restrictions on imported cars, we can expect India’s economic outlook to flourish even further beyond 2022.
A Flourishing Digital Payments Ecosystem Will Drive Further Growth of Digital Financial Services.
We expect the digital payments ecosystem to grow further in the coming years and drive digital financial services. The number of online transactions is expected to rise as more people adopt e-commerce and begin using digital wallets. As this trend continues, India’s e-commerce industry will become increasingly important for economic growth.
As India’s internet ecosystem evolves, so too will its payment technology industry. With more users accessing the internet via mobile phones or tablets than ever before—and with a large number of these devices being wireless—the country will see increased usage of mobile payment channels such as UPI (Unified Payments Interface).
A Focus on Infrastructure and Exports Can Restart the Economy’s Engine.
To restart the economy's engine, it's important to focus on infrastructure and exports. Infrastructure projects are a key driver of economic growth. They need to be planned and implemented efficiently. Otherwise they can lead to inefficiencies that impact economic performance negatively. Infrastructure investment is also very important in reducing supply bottlenecks, creating employment opportunities as well as improving productivity levels across various sectors of the economy. In addition to this, improvements made in transport networks help increase exports by improving access to ports and airports among other things.
To increase its exports, India needs improvements in infrastructure such as ports and transportation networks (including roads) because these will reduce costs and help improve competitiveness. The government has increased spending on these areas by around $10 billion since 2014-15, but there is still much more work needed before we see any significant effects on our trade deficit.
Conclusion
We believe that with the right policies, India can transform its economy into one of the world's largest. The country has many advantages, including a large workforce, a rapidly growing middle class, and rising incomes. However, it faces challenges related to inadequate infrastructure, inefficient labor markets, and underdeveloped financial systems. The government has taken steps to address these issues by investing in infrastructure projects and expanding access to banking services via mobile phones.
India’s economic outlook is projected to grow at 7.5% in the fiscal year 2022-23, up from 7.2% in FY 2021-22. The growth rate has been rising steadily since 2014-15, when it was at 5%. The rise in growth is due to several factors including lower oil prices, improved export performance and an increase in public investment.
The Reserve Bank of India (RBI) expects the growth rate to further improve to 7.7% in FY 2023-24 and 7.8% in FY2024-25, driven by higher government spending on infrastructure and social sectors such as education and healthcare. It is believed that the government's efforts to increase spending on infrastructure will boost investment demand and help achieve a faster GDP growth rate than what is currently expected.