Deloitte Projects India will Reign as Fastest Growing Economy Over the Next Few Years

In their July 2022 India Economic Outlook Report, Deloitte projects that India will reign as the fastest growing economy in the world in subsequent years. The report further explains the reasons for this optimistic view in light of various anticipated challenges and setbacks. In a time when the recession is taking hold globally, it is interesting to see how India is tackling multiple critical factors. 

Deloitte reports, “It is true that uncertainties in the global business ecosystem will send crippling headwinds toward India. Inflation and supply chain disruptions will remain entrenched for some time. However, domestic demand and the desire of global businesses to look for more resilient and cost-effective investment and export destinations, among other factors, will help India ride this tide of headwinds. The optimism about India’s economic recovery, although slightly bruised, remains intact.”

A Bloomberg survey also recently concluded that India has a zero chance of recession at this time.

Reasons for Optimism 

The following are the various reasons why Deloitte forecasts growth for the Indian economy in the coming years. 

A Surge in Economic Activity

• India’s domestic demand consumption and investments comprise approximately 70% of the economy.
•  Around 10,000 listed businesses have been experiencing profit and growth during the past year and have accumulated significant amounts of cash
• Industry and services have remained boisterous and resilient despite erratic global trends
• Inflation has impacted Indian consumers and low-income households especially. However, with the decrease in pandemic restrictions, consumers are demonstrating a considerable surge in spending. The top ten income percentile specifically has been restricted from spending and traveling for a year and is trying to make up for it with gusto. 

Travel and Hospitality Industry 

• Flights and hotel reservations have been increasing 
• The hospitality sector has been helped by increased travel and in-person client interaction. 
• The number of foreign tourists coming to India nearly doubled this year between the months of January and April.

Electricity Demand and Vehicle Registration

• The electricity consumed in the first six months of this year exceeded the amount consumed during the past three years. 
• Vehicle registration has returned to pre-pandemic numbers

Government Capital Spending Is Going Up 

Indian gross tax collected has exceeded expectations. In FY21–22, the total tax revenue collected was INR 27.07 lakh crore (US$356.82 billion), far exceeding the government’s revised target. This and increased economic activity have led to greater revenues. 

Exports

Exports thrived during the pandemic and recovered well when other economies were struggling considerably. 

Scenarios for the Future 

The Deloitte 2022 report has projected two scenarios to depict what might potentially happened in the future. 

Scenario 1

In Scenario 1 in the Deloitte report, there is a chance that the Russia-Ukraine issue may subside by the end of the year rather than escalate. Both the US and the EU experience slower but constant growth. Meanwhile, the pandemic’s effects on the economy are negligible.

• Businesses and investors in the second half of the year concentrate on fundamentals and growth prospects due to less uncertainty.

• As the US Fed raises policy rates, the Indian government and the RBI struggle to strike a balance between growth and inflation worries while also preventing capital flight.

• The policy rate is increased by the RBI six or seven times in FY22–23, reaching 6%.

Scenario 2

In the report’s more pessimistic Scenario 2, the Russia-Ukraine situation will likely last much longer and extend beyond 2023. Russia responds as a result of advanced nations imposing additional sanctions on it (by reducing deliveries of natural gas to Europe during the winter months). As more countries directly participate in the conflict, tensions rise. Europe and the US both experience a recession. In numerous economies, notably China, the epidemic causes lockdowns and a slowdown in the economy. This situation is deemed unlikely. 

• Financial stability and supply chains, particularly in the semiconductor, food, and automotive industries, are second-order effects of a protracted crisis.

• As inflation soars, the Indian government bears the lion’s share of the price increase.

• The RBI makes one or two hikes but eventually backs down.

These two scenarios capture the case of a favorable outlook in contrast to a more unlikely negative one. Reality is likely to fall somewhere in between the two. The outlook at the moment for the growth of the Indian economy is favorable. Experts forecast buoyancy in the face of the recession. High growth is predicted for the next few years. In light of the global impact of the recession, it is the the right time to make the most of India’s investment opportunities.

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