Indian ascent to the G20 and SCO presidencies occurred in the midst of a gloomy geoeconomic and geopolitical backdrop that has often been described as the polycrisis—a phase of convergence of multiple complex problems. The complex and intricate combination of these problems entails an uneven and unsatisfactory post-pandemic recovery; the Ukraine crisis causing deleterious impacts on the commodity value-chain; global stagflation, i.e., a phase showing coexistence of economic downturn and inflationary pressures; and the perennial assault of climate change exacerbating the developmental parameters.
The dismal global economic outlook can be made out from the recent International Monetary Fund’s projections of global growth that are slated to decline below 3.0 percent in both 2023 and 2024 from an estimated 3.1 per cent in 2022.
The dismal global economic outlook can be made out from the
recent International Monetary Fund’s projections of global growth that are slated to decline below 3.0 percent in both 2023 and 2024 from an estimated 3.1 per cent in 2022. The global economic slowdown is not only attributed to the inadequate post-pandemic recovery followed by supply-side bottlenecks created by the Ukraine crisis, but also the rise in central bank policy rates to fight inflation caused due to the supply-chain constraints. Policy rate hikes have further slowed down economic activities, especially by down-turning global investments.
Fig. 1: Global Growth (%) and Inflation (CPI%) from 2000-2022
Source: World Bank
As can be witnessed in Fig. 1, the year 2022 clearly reveals the aberration in macroeconomic theory where growth phases are to be associated with inflation due to demand pressures emanating from consumption or investment (both public and private). On the contrary, we find that in 2022, global growth has declined but inflation has increased—a phenomenon symptomatic or at least indicative of stagflation. The inflationary pressures are felt in commodity prices including food items thereby leading to a dent in economic and social well-being.
Fig. 2: India’s Growth (%) and Inflation (CPI %) from 2000 to 2022
Source: World Bank
Let us look at India now. Fig. 2 shows that the Indian situation is exactly the opposite of the global trajectory. India reveals a growth rate of 7 percent, that is much higher than the global rate of 3 percent, while its CPI inflation is still way lower than the global inflation of 8.2 percent. This reinforces the Indian Finance Minister Nirmala Sitharaman’s contention during the Union Budget 2023 speech that India is clearly a bright spot in the dismal global economic backdrop. The Indian growth rate of 7 percent is the highest among all the major economies of the world while keeping inflation under control, thereby reflecting good economic governance evading the contagion effect of the gloom and doom of the global economy.
The inflationary pressures are felt in commodity prices including food items thereby leading to a dent in economic and social well-being.
What made the post-pandemic revival possible?
As one may note, the pandemic year of 2020 led to a negative GDP growth rate both globally as also in India. However, the revival in India’s growth rate can largely be attributable to the revival in consumption expenditure. While in 2020, consumption declined by 4.5 percent, the same increased by almost 10.5 percent in 2021. It needs to be noted here that ever since 1991, the Indian growth story has largely been a consumption-driven one. What is interesting here is that this consumption-driven-growth phenomenon is largely organic and has not been promoted by policy. This is much in contrary to
China’s thinking where consumption-driven growth was thought of more as a policy priority to boost investment and production within the domestic economy.
China’s 13th five-year plan document for 2016-2020 explicitly mentions “consumption-led growth” as the development vision by increasing the purchasing power of its citizens through increases in wages and salaries. This vision provides a departure from the export-driven-growth model that remained contingent upon global economic conditions. In that sense, consumption-driven growth provides the domestic economy the necessary cushion in times of global economic slump and decouples growth from global economic conditions. As stated earlier, the Indian economy embarked on this phenomenon organically, and that has sustained Indian growth today even under conditions of global slump. This has been adequately supported by smart inflation control measures, especially in the cases of commodity prices through state-of-the-art market intelligence resulting in cost-effective procurement of crude oil and food items.
This vision provides a departure from the export-driven-growth model that remained contingent upon global economic conditions.
Why is the Indian economy slated to grow?
The Indian economy is slated to grow because of enabling conditions created by a) global slump and geopolitical uncertainties; b) the increasing
inclusive wealth created by human, physical, and natural capital, and c) diversification of investments from China to other nations for managing economic and geopolitical risks emanating from concentration of investments in a single or few locations. In other words, the US-China trade conflict and disruptions in global supply chains due to the pandemic and the Ukraine-Russia war have prompted Western companies to diversify investments to other destinations to manage economic and geopolitical risks. The Indian economy adequately provides for that destination due to the following factors.
- Human capital resulting in demographic dividend: India's young population (52 percent under 30) surpasses China's (40 percent), giving it an advantage in driving consumption, savings, and investment for economic growth. India has emerged as the most populous nation in the world in 2023. With increasing per capita incomes (7 percent annual growth), India presents a formidable product market, thereby luring FDI.
- Cost advantage: The massive human capital also offers a formidable factor market in the form of a massive pool of cheap and skilled labour. India's lower labour and capital costs compared to most major economies including China make it attractive for manufacturing and export. With its manufacturing scale, India can become a significant player in electronics and semiconductors.
- Infrastructure investment: Robust investments in infrastructure, like the National Infrastructure Pipeline, will decrease manufacturing costs and enhance transportation efficiency, benefiting the overall business climate.
- Policy reforms: India's policies, including the Production Linked Incentive scheme and FDI liberalisation, promote a favourable business environment. Initiatives like “Make in India” drive competitiveness and reduce transaction costs.
- Digital potential: India's high internet penetration (43 percent) enables the utilisation of digital skills across sectors. Homegrown technologies and English language proficiency give India an edge in digital capabilities.
- English proficiency: English as a second official language facilitates communication with North American and European clients, giving India a communication advantage.
- Global partnerships: India's involvement in groups like QUAD, I2U2, or partnerships like Indo-Pacific Economic Framework for Prosperity (IPEF) and trade agreements with various countries (like the ones signed recently with the United Arab Emirates, Australia, or even those in the offing like the United Kingdom or European Union) provides access to finance, technology, and untapped markets while positioning India as a voice for the Global South.
India has, therefore, emerged as a preferred investment destination with
FDI inflow increasing 20-fold in the last two decades. The increase in the post-pandemic era is even more notable with India receiving the highest annual FDI inflow of US$84.83 billion in FY 21-22 overtaking the previous year’s FDI by US$2.87 billion. FDI equity inflow in manufacturing sectors increased by 76 percent in FY 2021-22 (US$21.34 billion) compared to the previous FY 2020-21 (US$12.09 billion). As such,
total FDI inflows to India during April 2000–March 2023 cumulatively stand at US$919 billion, with the last nine years constituting 65 percent of the same.
The increase in the post-pandemic era is even more notable with India receiving the highest annual FDI inflow of US$84.83 billion in FY 21-22 overtaking the previous year’s FDI by US$2.87 billion.
According to the
World Bank, India reveals a substantial increase in gross capital formation in the post-pandemic phase (17.9 percent and 9.6 percent growth in 2021 and 2022 respectively), which is way higher than the global gross capital formation growth (6.9 percent in 2021). All these numbers augur well for the future of the Indian economy.
Conclusion
India, through its G20 presidency, has already established itself as the leading voice for the Global South. This becomes even more important with the double troika of the Global South spearheading the G20 through successive presidencies — Indonesia in 2022, India in 2023, followed by Brazil and South Africa in 2024 and 2025 respectively. As India completes 76 years of independence in the year of its G20 and SCO presidencies, it provides the glimmer of much-needed optimism not only to the Global South but also to the world economy as a whole. Its resilient economy has rebounded from pandemic-induced negative growth, making it a shining prospect in the gloomy global arena. Summarising this in the words of Charles Dickens: India provides the “spring of hope” in the “winter of despair”. Can India provide the global economy with a leeway from this economic slump? Can India be the driver of global growth? These questions need not be answered, but need to be celebrated. These are not questions, but marks of achievements for where India stands today and its promising economic future.
Nilanjan Ghosh is Director of the Centre for New Economic Diplomacy at the Observer Research Foundation.
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