Strong government contributes to stability and growth

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Venkat Raman

More than a billion people in India and at least 30 million people of Indian origin constituting the Indian Diaspora across the Continents will mark the 73rd Independence Day of their Motherland today (August 15, 2019) and celebrate the 72nd Anniversary of their freedom from Britain on this day in 1947.

While the country has earned an exclusive place of pride, honour and dignity as the world’s largest democracy, political stability has been underscored by a strong federal government over the years, especially since May 2014 when Narendra Modi led his Bharatiya Janata Patty (BJP) to victory, thrashing the Congress Party at its allies at the pools. He and his Party received a more massive mandate at the elections held two months ago and with the BJP gaining ground in several States, India is repeating its political history of Post-Independence era of political stability inspiring business and societal confidence.

In today’s world of interconnectivity, that confidence is manifest in increasing flow of Foreign Direct Investment (FDI) and international financial institutions.

Unprecedented Opportunity

The World Bank, in its April 2019 Report said that India is in a period of unprecedented opportunity, challenge and ambition in its development.

“Already the world’s third largest economy in purchasing parity terms, India aspires to better the lives of all its citizens and become a high-middle income country by 2030, well before the centenary of its independence,” it said.

India is an interesting case study for economists around the world, for the country shines against its own contrasts of poverty (although at a reducing rate) amidst plenty, poor infrastructure in a number of States against world-class facilities in major cities and rising unemployment despite a surge in startups and small enterprises.

The Indian economy however is robust and long-term GDP growth is projected to be more stable, diversified, and resilient. Over the next few years, India is expected to grow at 7% per year, with progress being buttressed by dynamic reforms in the macroeconomic, fiscal, tax and business environments.

Wealth Creation

The World Bank said that in recent years, India has made a significant dent in poverty levels, with extreme poverty dropping from 46% to an estimated 13.4% over the two decades before 2015. “While India is still home to 176 million poor people, it is seeking to achieve better growth, as well as to promote inclusion and sustainability by reshaping policy approaches to human development, social protection, financial inclusion, rural transformation, and infrastructure development,” the Report said.

Persistent Challenges

While the country’s development trajectory is strong, challenges remain.  Economic performance has been strong, but development has been uneven, with the gains of economic progress and access to opportunities differing between population groups and geographic areas. Despite regulatory improvements to spur competitiveness, levels of private investment and exports continue to be relatively low, undermining prospects for longer term growth.

The country’s human development indicators, ranging from education outcomes to a low and declining rate of female labor force participation, underscore its substantial development needs.

Economic Outlook

According to the World Bank, India’s ability to achieve rapid, sustainable development will have profound implications for the world.

“India’s success will be central to the world’s collective ambition of ending extreme poverty and promoting shared prosperity, as well as for achieving the 2030 Sustainable Development Goals (SDGs).  Indeed, the world will be only able to eliminate poverty if India succeeds in lifting its citizens above the poverty line.

“For international trade and the health of the global economy too, India’s growth will be more important. In addition, the carbon footprint India leaves as it propels its high growth will have a significant influence on the planet’s ability to keep global warming within the 2-degree threshold,” the World Bank said.

As the country tackles several crucial issues such as managing scarce water resources, modernising food systems, improving rural livelihoods, ensuring that megacities become engines of sustainable economic growth and inclusion, India’s development trajectory will have a major influence on the rest of the world.

Public Spending Boost

Prime Minister Narendra Modi had, during his election campaign earlier this year, pledged that his government will spend about US$ 1.45 trillion on infrastructure over the next five years. In line with that promise, Ms Sitharaman announced that the government will commit investments up to US$ 72 billion to improve Indian Railways and build 125,000 kms of roads at a cost of US$ 11.6 billion by 2024.

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