An Indian dream of achieving the 5 trillion dollar milestone

The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.

TIndia is currently in an ‘economic growth’ sweet spot. Favorable government measures and the country’s demographic profile have strengthened the foundation to further build on the country’s growth story. Currently standing at $2.8 trillion, the Indian economy is estimated to join the $5 trillion club by 2024. 

This opens up a world of possibilities for those who seek to grab a share of this pie by offering unique solutions to the unique needs of a growing economy.  With opportunities galore, most corporate and Indian startups are eyeing to expand their presence to capitalize on the potential that the economy has to offer. 

An ambitious agenda of change can facilitate the growth rates upwards. India can become a 5 trillion dollar economy in 2024 with 12 per cent annual growth rate and in 2022 with21 per cent annual growth rate. But achieving such high growth will require exceptional structural changes in all sectors of the economy. To succeed in this endeavor, it is essential to firstly build a strong financial base. 

The incumbent government had taken landmark steps in its previous stint such as the implementation of demonetization, the goods and services tax as well as theinsolvency and bankruptcy code towards building a healthy, robust and transparent ecosystem. The general election haspaved the way for the incumbent government’s second stint resulting in continuity of the much needed economic policies and reforms with the reduction in corporate tax being amongst the first. It places India competitively against its South Asian peers offeringan alternative to those companies which are looking out for shifting their production bases away from China. Such steps have positively impacted our economy with inflation under control, lower interest rates, to name a few.

The corporate tax rate cut is expected to be a game changer as it would attract new investments. Corporate rate tax cuts as a tool to attract new investments coupled with land and labour reforms haspotential of attracting huge investments.

The tax rate cuts would put India at the forefront in the boardrooms of various international players who arelooking forward to explore diversifying away from China in wake of the ongoing US China trade war. 

Other recent measures taken by the government to encourage investments by allowing 100% FDI in contract manufacturing, relaxingsourcing norms for single brand retail, and the introduction of a new refund mechanism for exports suggest that the government isfocused on making India an investment favourite destination for all those companies which rely on global supply chains. 

WithChinese manufacturing and labour costs increasing over Indian costs, MNCs are looking at developing their manufacturing facilities or supply chain units in India which could boast India’s export business. Increasing investments would improve the demand for land, labourwhich would then drive consumption led demand setting the virtuous circle of consumption and demand on roll. 

Having taken themeasures to rectify leakages of the economy in its first term, the government, in its second term, is on an overdrive to ensure that theeconomic growth engine keeps accelerating. Indian economy so far has been driven by domestic consumption with export contributingaround 10% of GDP. All the necessary conditions for export led growth are being put together to facilitate this change.

Given the contained inflation, benigninflationary outlook and supportive central bank, the cost of funds are expected to stay low and reduce further thus supporting institutionalcapital expenditure and personal consumption over next couple of years. 

There could be changes in the personal tax rates as proposed in the direct tax code. Modifications to the personal income tax rateswould accelerate thespending on discretionary consumption. Good monsoon, bumper crops coupled with better MSPs foragricultural produce would improve the rural incomes and consumption as well. Rising per capita income above $2000 would also give aninflectionary push to discretionary consumption as the basic necessities are taken care of.

With stability on political front, pro-business government in place, reducing cost of capital, and growing opportunities as the Chinesecompanies are vacating the space due to losing competency, foreign investments are expected to increase in India which would drive consumption in turn giving an impetus to the growth in the economy.

The Indian economy is going through phase of healthy transformation andis finally moving out of the negative legacies of the past. It is now on the brink of completing its economic transition.These changes will propel India to the front ranks of the global economy on the back of double digit growth. Sustained internal reforms combined with healthy growth rate will help India achieve the dream of becoming a five trillion dollar economy.