MUMBAI:
India will become the world’s fastest-growing major economy in the coming year as a post-pandemic retail boom and recent bank balance sheet repairs lure new investment, boosting demand for everything from cars to televisions, coal and planes.
The world’s fifth-largest economy is expected to grow at a rate of 6 percent in the fiscal year ending March 31, 2024, according to a survey released by India’s central bank this month.
Although the outlook is slower than the 6.8 percent growth expected for the current fiscal year, it contrasts with the gloomier 2023 projections in the United States, Europe and, in particular, China, a major Asian economic rival where a recent spate of COVID infections expected to hamper activity next year.
Importantly, conditions are better than not only the crippling slump during India’s devastating COVID wave last year, but also the anemic growth of the debt-saddled past decade.
The more upbeat mood is supporting spending and investment in India, although the recovery is expected to be uneven, benefiting the urban and domestic sectors more than the struggling rural and export-oriented parts of the economy.
“If India does everything right, we could see significant foreign inflows in the next one to two years,” said Sridhar Sivaram, investment director at Enam Holdings, a privately managed investment group.
He is most bullish on Indian banks, which are having a “Cinderella moment” – a phrase popularized by billionaire banker Uday Kotak, due to high credit demand and reduced default rates.
India’s weight in the MSCI emerging markets index has already increased from 8 percent in 2019 to 16 percent as of October 2022, Mr Sivaram said.
Foreign portfolio investors sold $18 billion net this year but became buyers in November and December, with financial stocks accounting for a third of inflows last month.
Longer-term foreign direct investors poured $22 billion into India between April and October 2022, the same amount as the previous year.
Computer software, service industries, trade, non-conventional energy and chemicals made up more than half of the inflow through September this year, government data shows.
Uneven rebound
Economic activity picked up after a third wave of COVID infections in 2021, which was less severe than feared and led to most COVID restrictions being lifted, releasing pent-up housing demand for cars and consumer goods in urban areas.
Pradeep Bakshi, CEO of consumer equipment maker Voltas, said sales were boosted by a backlog in orders and easier financing options, such as buy-now-pay-later schemes, which reduce prepayments for consumers.
Demand for services such as hospitality, travel and leisure rose 7.4 percent in the September quarter from the same period in 2019, before the COVID crisis hit, gross domestic product data showed.
“We are back in expansion mode, after a period where we didn’t know if we would survive,” said Anjan Chatterjee, managing director of Specialty Restaurants, who run eateries across the country.
Overall, private consumption rose 7.8 percent in the September quarter from pre-COVID levels in 2019, while a sharp increase in government spending has boosted fixed investment, an indicator of investment activity, by 13, 5 percent from 2019, GDP data showed.
Investment recovery
India’s reopening is one reason why demand for electricity and coal is high, prompting the government to ramp up gas imports as more companies seek bank credit as they add capacity.
For example, Air India is eyeing groundbreaking orders for as many as 500 jetliners worth tens of billions of dollars from both Airbus and Boeing, Reuters reported this month.
However, not all indicators point to the same level of economic strength.
Unemployment remains high at an average of 7.4 percent over the past 12 months to November, compared to 6.3 percent in 2018-19 and 4.7 percent in 2017-18, the Center For Monitoring Indian Economy estimates.
High inflation, which is set to average 6.7 percent in 2022-2023 by the central bank, has also negatively impacted spending in rural areas where wage growth has not kept pace with urban areas and disposable income is lower is.
Production of nondurable goods, including snack foods and soaps, which are sensitive to shifts in rural demand, contracted by more than 4 percent between April and October and by 13 percent in October alone, pushing total production that month was 5 percent lower.
Declining global demand is also starting to weigh on exports of items such as textiles.
However, broader optimism remains bolstered by the prospect of new private investment following a decade in which Indian companies were over-indebted and banks were saddled with bad loans that made companies reluctant to spend.
Mr. Sivaram of Enam Holdings said the number of order announcements has grown, although it usually takes about two years for “a capex cycle to translate into revenue”.
There is also hope that international companies will diversify supply chains outside of China, which would benefit India.
“In the chemical sector, we have seen this China-plus-one strategy work out quite well and we are positive about some companies in that sector,” said Sivaram.
(This story has not been edited by DailyExpertNews staff and is auto-generated from a syndicated feed.)
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