It is possible to imagine India striking out into the next decade with a growth rate of 10%: RBI DG Patra

It is possible to imagine India striking out into the next decade with a growth rate of 10 per cent, according to MD Patra, Deputy Governor, RBI.

This growth rate is possible given the country’s innate strengths and the energies and transformation that are driving it to overcome its challenges and achieve its aspirational goals.

“If this (10 per cent growth rate) is achieved, India will become the second largest economy (as per OECD’s December 2023 update, India will overtake the US by 2045 in PPP terms to become the world’s second largest economy) in the world not by 2045, but by 2032 and the largest economy by 2050,” Patra said at the Nomura’s 40th Central Bankers Seminar at Kyoto, Japan.

The Deputy Governor emphasised that the Indian economy is at a sweet spot in its evolution.

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“Real GDP is growing at the fastest pace among major economies. Inflation is approaching its target albeit unevenly. The external balance sheet is stronger than ever before, underpinned by ebullient capital inflows, a modest current account deficit and large foreign exchange reserves. Fiscal consolidation is into its third consecutive year after the pandemic,” he said.

Patra observed that the corporate sector has deleveraged and is poised to launch a new cycle of capital investment.

“The financial sector is sounder and more resilient, as it prepares for intermediating the resource requirements of a rising growth trajectory over the next few decades.

“Reflecting these developments, financial markets are ignited with robust optimism even as investors are already positioning themselves to buy into the unfolding India narrative,” he said.

• Also read: Financial conditions may be less supportive of growth in fiscal 2025: Crisil

State of the Economy

The Deputy Governor underscored that India’s growth trend is on the cusp of a post-pandemic upshift, with early signs of it rising above 7 per cent recorded during the 2000s before COVID-19 struck.

“While private consumption typically accounts for about 60 per cent of India’s GDP, it is investment and exports that provide the turning points. In the period 2021-24, the export lever has been muted by global headwinds, but public expenditure on infrastructure is taking over as the locomotive of the step-up in the growth trend. Recent surveys indicate that private investment is getting crowded in,” he said.

Patra observed that India has emerged from the pandemic scarred but resilient and poised to make a tryst with its developmental ambitions by riding the thermals that these opportunities are generating. However, take-off will have to contend with the headwinds posed by several challenges.

“Reaping the demographic dividend hinges around expanding the contribution of the workforce to GDP growth.

“Currently, the contribution of labour to value added in India compares poorly in a cross-country perspective – in terms of appropriate skills for a specific job, only 51 per cent is employable, highlighting the criticality of the upskilling missions that are underway...Digital transformation through the Digital India campaign opens up new avenues for employment. ,” he said.

Rural employment programmes and women empowerment schemes also promote the contribution of labour to value added.

“More than 80 per cent of the workforce is employed in the informal sector...Furthermore, India ranks low in womens’ participation in the workforce.

Key challenge

“Increasing female labour participation is a key challenge, needing social norms in favour of working women; incentivising diversity in educational institutions and workplaces; flexible working hours and women-friendly policies and facilities at workplaces; and promoting work-life balance – metaverse may offer exciting opportunities.” Patra said.

He opined that a qualified labour force contributes best when supported by high quality infrastructure.

“India’s per capita investment in infrastructure at US $90.6 in constant 2015 dollars in 2020 needs to be scaled up by lifting infrastructure investment growth from around 3.5 per cent to at least 6 per cent to achieve world-class standards,” the Deputy Governor said.

Patra noted that India largely bypassed manufacturing in its developmental journey - services account for two-thirds of India’s economy today. India’s manufacturing sector as a proportion to GDP (in constant 2015 US dollar terms) remains much below the world average. 

“Since the 1990s, the average growth of manufacturing has been 7 per cent. With 8.5 per cent growth, manufacturing’s share would rise to 20 per cent of GVA by 2030-31, and to 25 per cent if the growth rate can be pushed up to 12.5 per cent – making India a global manufacturing hub with forward and backward linkages for other sectors of the economy.

“To achieve this, India must adapt to the fourth industrial revolution (automation; data exchange; cyber-physical systems, the Internet of things; cloud computing; cognitive computing and creating the smart factory, advanced robotics). A skilled labour force will hold the key,” he said.