Why India can grow faster in the emerging markets economy?

As per the S&P global ratings, India by the next fiscal will become one of the fastest-growing economies with a growth of 10%. Due to the covid-19 crisis, various economic activities were on hold last year. However, the activities continue to be active as things get normal. Andrew Wood, S&P director, sovereign and international public finance ratings, said that the forecast for India would be much stronger and there will be much more growth in 2021, despite all the economic activities that were halted.

Situation During The Lockdown

The contraction of India was steep and maybe deeper than the global average. It is predicted that India will have a bounce-back by 10% in 2021, which will make India one of the fastest-growing economies in the emerging market space in 2021. With that being said, Mr. Wood also stated that the Indian economy will grow at 6% over the medium term, and the growth can also be slightly higher than that. S&P said that the economy of India is stabilizing over recent months, and there have been better services, manufacturing, labor-market, and revenue data over the recent months. They also said that converting the trends into sustained recovery will be a hard part over the next few years.

Growth Of The Indian Economy

Due to higher expenditure for stimulating the economy during the crisis, India has exceeded the deficit target of 3.5, which was set for the fiscal. The over-expenditure of government more than the revenue, and the deficit has pegged at 9.5% of Indian GDP. It was concluded for the revised estimate of the fiscal that ended on March 31.

However, for the year 2021-2022 the next fiscal, the deficit has been decreased to 6.8% of GDP and will be decreased to 4.5% by 2025-2026 fiscal.

Impact of slow recovery on the growth of Indian economy

  • The slower recovery that is lesser than expected and slower nominal GDP growth can put downside pressure on the ratings and that would be a topic of concern for the Indian economy.
  • The Indian economy needs to grow at a faster pace. Lower than expected growth can cause more fiscal deficit and which will also raise the debt stocks.
  • The debt to GDP ratio of the general government of India was 72% in 2019. However, the ratio rises to around 90%.

Privatization of PSU Banks –

The government has also announced the privatization of two public sector banks and one general insurance company. It was announced in the 2021-22 budget by Nirmala Sitharaman. She said that Privatization of the public banks would improve the efficiency of the system. She also added to her statement that the Indian banking system is seen as a fragmented market that needs consolidation. However, the consolidation will always not be an answer to the capital issue faced by the banks and the NPL. If the banking system is consolidated, that will be accompanied by improvement in risk management, staff realignment, and governance improvement.

Bottom Line

India will soon be counted as one of the fastest-growing emerging economies. However, to achieve this, the deficit must be controlled, and the debt stocks should stabilize. It will only be possible with nominal GDP growth.

Team Mahendra Inc

For over 30 years, Mahendra Sharma has been accurately predicting and has proven himself to be a stock market astrologer. Mahendra’s predictions consistently outperform stock market prediction software. His successful predictions have spanned the globes, ranging from correctly identifying and stock market trends, upswing in uranium prices, weather reports to support grain growth in Australia and South America, the European debt crisis, as well as the rise in the Swiss Franc and the Yen.