Page 10 - CII ARTHA India’s Growth Prospects
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Domestic Trends

        economic and financial     the coming years at a weaker   system to address these   on growth and recently                                                                                                                                                           cent in 2022-23.            as it is among the most
        inclusion and holds important   pace than the average for the   challenges, together with   imposed trade frictions, such   India's Economic                                                                                                                         Construction services, on the   labour-intensive sectors.
        promises for productivity   two decades before the     renewed skilling efforts. India’s   as export restrictions on                                                                                                                                                 other hand, is estimated to   Financial, real estate, and
        gains across all sectors of the   COVID-19 pandemic.   success at exporting services   wheat and rice and the                                                                                                                                                        spearhead growth with a     professional services are
        economy. Moreover, the     Geoeconomic fragmentation   demonstrates the significant   Import Management System                                                                                                                                                       double-digit surge of 10.7 per   expected to maintain a strong
        government’s infrastructure   is on the rise with tensions   payoffs of quality education.   for IT equipment such as                                                                                                                                                cent in 2023-24, supported by   performance, projecting 8.9
        investment push is upgrading   escalating in the form of trade   Building on this, and focusing   laptops, tablets, and personal   Growth Remains                                                                                                                    a robust performance in the   per cent growth compared to
        logistics, providing a strong   restrictions and other   on industry-centric and   computers, could be                                                                                                                                                               first half of the year, The   7.1 per cent in 2022-23.
        basis for private sector   inward-looking policies. The   forward-looking skilling   counterproductive in the                                                                                                                                                        strong growth in construction   Public administration and
        investment and growth. But   wars in Ukraine and the   programs can help ensure   medium to long run.                                                                                                                                                                augurs well for employment   defence are also expected to
        perhaps India’s most       Middle East are examples of   workers have the right skills   Unwinding trade restrictions   on a Strong                                                                                                                                                              perform well in 2023-24.
        significant potential resides in   geopolitical risks materializing,   to succeed in the job market.   and removing tariff and
        its young and growing      threatening global trade and   And in this context, the   non-tariff barriers would
        population, which could    commodities markets.  And   private sector has a crucial   increase integration into
        potentially add about 10   that is not even taking into   role to play as a partner   global value chains, boost       Footing
        million people annually to the   account the major challenges   involved in the development   productivity, help create more
        labor force by 2050. Should   that climate change is likely to   and implementation of those   jobs, and boost overall growth
        these numbers translate into   present for India and the   skilling programs.     in India.  At the same time,
        sustained increases in     region over the coming      Streamlining labor and     food security concerns would
        productive employment (if far   decades.               business regulations would   be better addressed by
        reaching reforms continue, as                          help remove obstacles to   agricultural reforms to
        noted below), India’s      To navigate this complex    private-sector growth. Four   enhance market functioning
        economic and human         environment, India must leap   new labor codes were    by allowing price signals to          ndia’s real GDP is estimated   While the real GDP is
        development would          forward in its development   recently passed by Parliament   convey the right incentives to   I to grow at an impressive   estimated to record a
        significantly accelerate.  journey with an ambitious   between 2019 and 2020, to   market participants.                rate of 7.3 per cent in the   marginal increase growth
 he global economy is   challenges such as climate   reform agenda that boosts   consolidate, modernize, and                   fiscal year 2023-24 as per the   compared to the previous
 showing resilience, but   change can hardly be   Countries that have seen   growth and creates good jobs.   streamline regulations on   Advancing this structural   first advance estimates of   year, nominal GDP is
 challenges remain significant.   addressed in a fragmented   rapid gains in economic   The development of physical   wages, industrial relations,   reform agenda can boost   national income, slightly   expected to slow down to 8.9
 Growth in the world’s major   world. Greater multilateral   G20 presidency in 2023 paved   account deficit remains   development in recent   and human capital should   social security, and   India’s growth and help   higher than the 7.2 per cent   per cent growth in 2023-24
 economies has surprised on   cooperation is a precondition   the way for progress on   comfortably within historical   decades have generally   both be at the center of this   occupational safety, health,   harness its demographic   recorded in the previous year.   compared to the substantial
 the upside in the second half   for global prosperity, and   global issues, particularly in   norms and its financing does   benefited from integration in   agenda, complemented by   and working conditions.   dividends. The promise of a   The first half of 2022-23   16.1 per cent seen in the
 of 2023. Moreover, a soft   champions to advocate for   advancing multilateral   not appear problematic. Not   global markets. Access to   ensuring that those resources   Importantly, the new codes   prosperous development path   witnessed robust economic   previous year. This
 landing this year appears   such cooperation are needed.   cooperation on debt   only is the external sector   Western European markets   are put to their best use. To   introduce significant   is within reach if the reforms   activity, boasting an average   deceleration is attributed to a
 increasingly within reach as   resolution in heavily indebted   position robust, but also   (and financing) helped Eastern   that end, India can better   provisions that alleviate   are enacted. Now is the time   real GDP growth of 7.7 per   sharp decrease in the GDP                             Government frontloading of
 inflation has been declining   countries.  banks and corporates balance   European countries grow   expand its potential by   constraints discouraging firm   to act.  cent. However, the second   deflator which is estimated                                                                          capital expenditure has fuelled
 without significant output   sheets are looking their   rapidly following the collapse   bolstering education,   growth and formal job   half of 2023-24 is expected to   increase by at 1.6 per cent in                                                                                                investment growth which
 costs in many parts of the   Amid a challenging   strongest in several years. In   of the Soviet Union. The East   streamlining labor and   creation. Accelerating their   References  experience a marginal   2023-24, significantly lower                                                             registered a healthy pace of
 world. However, neither   environment, India has indeed   other words, India is enjoying   Asian tigers’ economic   business regulation, and   implementation would make   decrease, projecting a growth   than 8.9 per cent reported in                                                                9.1 per cent in H1 of 2023-24

 global growth nor interest   achieved a strong   a period of relative   take-off was facilitated by   removing trade barriers.  labor markets more flexible   ASER. 2023. Annual Status of   rate of 6.9 per cent.  the previous year.                                                                  and expected to increase
 rates are expected to return   macroeconomic performance,   macroeconomic and financial   deepening economic links   while protecting workers.   Education Report (Rural)                                                                                                                               further to 11.1 per cent in
 to their pre-pandemic levels.   helped by prudent policies   stability, notwithstanding the   with the rest of Asia and the   INDIA’S SUCCESS AT   Efforts to remove   2022. https://img.asercentre.                                                                                                    H2. States, too, have played a
 Financing costs for   India is emerging as an   and reforms. Growth in the   global challenges and risks.  global economy. China, whose   EXPORTING SERVICES   bureaucratic inefficiencies and   org/docs/ASER%202022%20re  REAL GDP POISED   ROBUST EXPANSION              On the demand side,         supportive role in increasing
 governments, households, and   important player in that   two post-pandemic years   level of development was   DEMONSTRATES THE   improve the business climate   port%20pdfs/All%20India%20d  FOR A REMARKABLE   IN NON-AGRI SECTOR                                                                     capex with a robust 52 per
 businesses are thus likely to   respect. With its increasingly   (that is, FY2021/22 and   Looking forward, India has   comparable to India’s in terms   SIGNIFICANT   can be supported by India’s   ocuments/aserreport2022.pdf.   GROWTH OF 7.3 PER   BALANCES THE SLUMP   of favourable government   investment remains a critical   cent surge in H1 of 2023-24
                                                                                                                                                                                                                                                                             driver of growth, with private
 remain elevated at times of   significant role in the world   FY2022/23) has been robust,   great potential to grow and   of GDP per capita as recently   world-class digital public   Accessed on August 8, 2023.  CENT IN 2023-24  IN AGRI SECTOR  Overall, high GDP growth is   policies, a significant   consumption lagging behind.   by 17 select states.
 already high public and private   economy, it is expected to   averaging 8.1 per cent.   develop over the coming   as the early 1990s, has grown   PAYOFFS OF QUALITY   infrastructure. For example,   IMF. 2023a. Geoeconomic   expected to be contributed   improvement from 1.3 per   Private consumption,
 debt, a significant vulnerability.   contribute about   Inflation which rose to 6.7   decades. Recent   rapidly since then, having   EDUCATION  the new Udyam Portal   Fragmentation and the Future   by non-agriculture sector,   cent reported in the                     contributing 57 per cent to   Exports have emerged as a
 16 per cent   per cent during 2022/23   reforms have   taken steps to unleash the   offered by the country’s   of Multilateralism. Staff   This remarkable growth   The agriculture sector is   especially the industry   previous year.                                                                big drag on growth, projecting
 Escalation of regional conflicts   to global   appears on a firmly   bolstered this   manufacturing sector to   Ministry of Micro, Small, and   Discussion Note 2023/001.   performance is underpinned   experiencing a marked   segment. Mining and quarrying              GDP, is expected to grow at   a growth of only 1.4 per cent
                                                                                                                                                                                                                                                                             only 4.4 per cent in 2023-24,
 and geoeconomic   growth   declining path. After rising   potential. India’s   generate export-led growth.  Strengthening education   Medium Enterprises  by robust performance of   slowdown, estimated to grow   is expected to do well with a   The services sector, while   trailing the 7.5 per cent   in 2023-24 on the back of
 fragmentation are also threats   this year.   to 12.9 per cent of GDP   world-class   (particularly at the primary   streamlines business   sues/2023/01/11/Geo-Economi  high-frequency indicators.   at a meagre rate of 1.8 per   growth rate of 8.1 per cent in   displaying healthy growth, has   recorded in the previous year   weak external demand, a
 to the global economy.   Moreover,   in FY2020/21, the general   digital public   However, India is set to   and secondary levels) and   registration for some of the   c-Fragmentation-and-the-Futur  Strong growth in GST and   cent in 2023-24 compared to   2023-24 compared to 4.6 per   moderated slightly compared   due to weak rural demand   sharp decline from the 13.6
 Research by the IMF has   its   government overall deficit   infrastructure, for   encounter a more complex   skilling can help address   country’s most important job   e-of-Multilateralism-527266.   direct tax collections,   4 per cent in 2022-23. The   cent in the previous year.   to the previous year. Trade,   per cent growth in the
 shown that fragmentation   successful   is being brought down, albeit   example, is   global landscape along its   India’s skill shortages and   creators.  IMF. 2023b. India: Staff Report   increased airline and train   weak growth in the   Utility services are also   hotels, transport, and   resulting from subdued   previous year. Imports are
                                                                                                                                                                                                                                                                             agriculture growth coupled
 could impose significant costs,   gradually. The current   fostering   growth path forward,   mismatches. Workers in   for the 2023 Article IV   passenger traffic, credit   agriculture is attributed to   expected to record robust   communication sector, in            with high food inflation.   also estimated to moderate in
 up to 7 per cent of global   compared to the favorable   general have fewer years of   Trade could help ensure   Consultation. https://www.imf.   expansion, manufacturing PMI   erratic monsoon that dragged   growth at 8.3 per cent along   particular, exhibit notable   Government consumption,    2023-24, recording a growth
 GDP (IMF, 2023a).   conditions that facilitated the   formal education than   resources are put to their   org/en/Publications/CR/Issues/  growth and moderation in the   down kharif production by   with manufacturing sector   moderation, with estimated                however, is projected to grow   of 13.2 per cent compared to
 Moreover, global   prosperity of other Asian   desirable (IMF, 2023b), and   best use in the economy,   2023/12/18/India-2023-Article-  gross NPAs ratio, collectively   4.6 per cent from previous                                                                                                     17.1 per cent in 2022-23.
        economies in recent decades.   education quality remains low   reducing misallocation and   IV-Consultation-Press-Release-  bode well for high growth of   fiscal and risks to rabi   recording a steady 6.5 per   growth of 6.3 per cent in                         at 4.1 per cent in 2023-24
        Global growth is slowing   (ASER, 2023). The 2020      inefficiencies. In that sense, by   Staff-Report-and-Statement-by  the economy.            production from low water   cent growth, supported by   2023-24 compared to 14 per                                 compared to an anaemic 0.1
        down, with the global      National Education Policy   limiting competition,       -the-542605                                                    reservoir levels.          lower input costs and a slew                                                            per cent in 2022-23.
        economy expected to grow in   aims to revamp the education   protectionism can be a drag
        10   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  11
                                                                                                                                                                                                                  QUARTERLY JOURNAL OF ECONOMICS
             FEBRUARY 2024                                                                                                                                                                                                   FEBRUARY 2024

 according to Niti Aayog and   are hesitant to   under Article 6 of the Paris   consider implementing a
 RMI. The move encourages   finance/refinance large-scale   Agreement. It will help   nationwide policy mandating
 manufacturers and project   green hydrogen projects.  create a marketplace for   the use of Green M15 fuel i.e.
 developers to invest in green   •  The production cost of   Indian green fuels like green   mixing 15 per cent green
 hydrogen and its derivatives   various green fuel   hydrogen and its   methanol with petrol, in
 like green ammonia and   technologies, such as green   derivatives, green methanol,   transportation and other
 methanol, putting India among   hydrogen and its   and SAF, among others, in   applicable sectors, supported
 those leading countries, such   derivatives, is higher.   the international market.  by incentives for producers
 as the United States and the   However, grey hydrogen,   •  There’s a need for speeding   and consumers to adopt this
 European Union, which have   alongside various grey   up strategic interventions   fuel. This could be a pivotal
 allocated public funding for   manufacturing methods, has   for the Green Hydrogen   step in India's journey
 green hydrogen.  towards a greener and more
 historically benefited from   Transition Program by
 subsidies. Without a robust   offering incentives for both   sustainable future.
 Establishing a market for green   and liquid global carbon   green hydrogen production   •  To ensure widespread
 ammonia and methanol is a   market, pricing the value of   and electrolyser   availability of Green M15 fuel,
 global issue. In India,   carbon and embedded   manufacturing. These   there’s a need for investment
 forward-thinking standards by   emissions in the production   initiatives will catalyze   in the necessary
 the Bureau of Indian Standards,   and usage of grey hydrogen   industry growth.  infrastructure for its
 such as blending DME with   becomes challenging. This is   production, distribution, and
 LPG and methanol with diesel,   why, initially, green   •  The cost of renewable   storage.
 are significant steps towards   hydrogen seems more   energy can be further
 integrating green fuels.  reduced through energy   •  Campaigns should be
 expensive than grey   surplus banking provisions,   launched to educate the
 especially for sectors   public and other stakeholders
 •  The cost of funding remains   mandated to use green   about the benefits of using
 a persistent bottleneck,   hydrogen.   Green M15 fuel and address
 presenting a considerable   •  The government should   misconceptions.
 challenge for project   implement targeted
 developers, impacting the   incentives to boost the   By adopting these
 optimization of capital   export of green molecules.   recommendations, India can
 expenditure and project   It will help establish India as   make significant strides towards
 execution.  energy self-reliance,
 a global leader in   environmental sustainability, and
 renewable energy.
 Suggestions  •  A mechanism should be   economic growth.

 developed to facilitate   Conclusion
 Challenges  To address the challenges, we   low-cost financing and
 provide benefits like
 suggest that the government
 take several steps to provide a   accelerated depreciation   This is the time to take
 Despite government efforts   much-needed boost to the   for green hydrogen   immediate action to overcome
 to promote green hydrogen   industry, such as:  infrastructure investments.  all the bottlenecks on the road
 and its derivatives, the sector   •  The government should   towards leading the global
 is still in its infancy, and   •  As in the initial days of   expand the FAME India   transition to sustainable energy.
 acknowledging and addressing   renewable energy, the   (Faster Adoption and   With right policies in place and
 the hurdles that impede our   government mandated its   Manufacturing of (Hybrid   the development of a market for
 full potential in this critical   usage through Renewable   &) Electric Vehicles in India)   green methanol and ammonia,
 sector is essential. Among the   Purchase Obligation (RPO).   Scheme to include green   India can unlock the full
 various challenges are -  potential of green hydrogen and
 Similarly, we suggest that a   methanol vehicles in it. It   its derivatives. Moreover, it will
 •  There isn’t much existing   quota should be mandated   will not only boost the   provide a much-needed boost
 demand and a developed   for the use of green   market but also provide   for the production, distribution,
 market ecosystem for   hydrogen in sectors like   support to the green   and usage of green hydrogen and
 green hydrogen and its   fertilizers, chemicals, steel,   hydrogen ecosystem in the   its derivatives across sectors.
 derivatives like green   and power generation.   country.  Such initiatives will not only help
 ammonia and methanol, not   Creating demand through   •  There’s a need for funding   India in achieving targeted
 only in India but also   policy will spur sectoral   and support for research   climate goals but also position it
 globally, compared to other   growth and reduce the   and development in the   as a leader in the green energy
 conventional fuels.   production cost of green   areas of green hydrogen   revolution.
 •  Project developers face   and methanol-based
 difficulty in getting final   •  Leveraging its international   technologies. It will further
 offtake agreements signed.  relations, the government   help enhance efficiency and
 should expedite the signing   reduce costs.
 •  In the absence of advance
 offtake contracts, lenders   of bilateral agreements   •  The government should
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