Can tomorrow’s Budget promise a decade of economic growth?
The makings of an economic powerhouse exist. What will be the way forward?
Hi everyone,
Is India the next greatest economic power?
This question echoes in a 2023 headline from a Harvard Business Review article, reflecting a wave of 'Indo-optimism' among numerous global analysts.
As the Union budget for 2024 approaches, a pre-election one at that, it's interesting to see that seldom has a finance minister enjoyed such stable macroeconomic conditions in recent memory.
Finance Minister Nirmala Sitharaman is gearing up to unveil an interim Budget on February 1. She's hinted that it won't be a spectacle—just a necessary vote-on-account to keep the public spending wheel turning until a new government steps in. But let's not forget, the last time around, before the 2019 elections, we saw some significant moves like tweaking income tax slabs and rolling out the PM-Kisan scheme, which pumped cash directly into farmers' pockets.
What’s changed in 2024? Despite a pandemic, aftershocks of the Russia-Ukraine conflict, and multiple bank collapses in the west, is the current surge of Indo-optimism undeniably stronger than ever?
I think so.
Here’s the good news -
Economic Growth: Robust at 7.3% for the fiscal year 2023-24.
Inflation: Declined from its peak of 7.8% post-Ukraine conflict to 5.7% in December 2023.
Foreign exchange reserves: Increased by $4.471 billion to $620.441 billion as of the week ending December 22, 2023.
Education: Enrolment of children in schools doubled from 11 million in 2005-06 to 22 million in 2020-21.
Digital Connectivity: 90% of rural youth (14-18 years) have smartphones in households, indicating growing digital outreach and connectivity.
Infrastructure Development: National highways development more than doubled to 9,304 km in 2023. Rural roads project expanded significantly.
TReDs: In December, TReDS saw Rs 13,000 crore in transactions, doubling monthly from 2022 to 2023, reaching almost Rs 1.2 lakh crore in 2023 from Rs 75,000 crore the year before.
Banking: Indian banks showed improved asset quality, with a record low GNPA ratio of 3.2% by September 2023. Both banks and NBFCs exhibited resilience, supporting double-digit credit growth. Slippage ratio declined, and large borrower accounts' contribution to NPAs reduced. Banks' balance sheets grew by 12.2% in 2022-23, with frauds at a six-year low. Restructured accounts decreased, especially in Private Banks.
So, what gives?
India's world-class digital public infrastructure, the India Stack, which has revolutionized access to various services, backs India's incredible and inevitable growth story. I’m not saying this, but the economic division in the finance ministry is. In its review of the economy, highlights that technology and digital platforms have been the driving force behind the reforms undertaken over the past nine years.
Advocates assert that India has pioneered a groundbreaking solution for developing and regulating the online sphere, which is viewed as more equitable than the laissez-faire approach in the US, more innovative than the EU's regulation-heavy model, and more transparent than China's authoritarian system.
In the past year, India's public digital infrastructure emerged as a central element of Prime Minister Narendra Modi's efforts to position India as an emerging economic powerhouse, an alternative investment destination to China, and a leading advocate for the Global South.
Digital infrastructure is not exclusive to India. Estonia, for example, boasts a digital pioneer status, with 99% of its population having ID, while nearly 80% of adult Kenyans utilize digital payments, largely due to the country's mobile money network. Nevertheless, analysts note that the scale and interconnectedness of India's digital infrastructure are unparalleled.
Aadhaar, India's digital identification initiative, didn't emerge overnight. Its foundations were laid during the tenure of the Indian National Congress, with contributions from the private sector. Today, it serves as the backbone for a myriad of essential services, ranging from digital vaccination certificates to streamlined bill payments and educational resource sharing.
When we delve into the numbers, they paint a compelling picture. In 2021, the government facilitated an impressive $66 billion in online benefit disbursements, a significant leap from the mere $1.2 billion in 2014. This substantial increase underscores Aadhaar's pivotal role in curbing inefficiencies and minimizing financial leakages.
However, the impact of Aadhaar extends beyond governmental realms; it has revolutionised operations within the banking sector as well. By reducing the cost of identity verification from Rs1,000 to a mere Rs5 per transaction, Aadhaar has empowered financial institutions to extend their reach to millions of previously underserved individuals, thereby fostering greater financial inclusion.
What's truly remarkable is that India's success with Aadhaar has transcended national borders. Several countries, including the Philippines and Morocco, have adopted similar digital identity frameworks, inspired by India's model. Even Jamaica leveraged Indian technology for its Covid-19 vaccination certification system.
Additionally, Singapore recently integrated its digital payment infrastructure with India's, facilitating seamless cross-border remittances for its substantial Indian-origin population.
The Digital Public Infrastructure (DPI) architecture has spearheaded a transformative wave in public welfare on an unprecedented scale. India’s DPI has banked a staggering 51 crore individuals—surpassing even the entire population of the United States—within the last decade alone. The Bank for International Settlements (BIS), renowned as the global hub for Central Banks, hailed this accomplishment as truly remarkable. Typically, BIS noted, achieving such a feat would take nearly five decades under normal circumstances.
That’s incredible.
It’s this convergence of DPI, physical infrastructure and upward looking social indicators that makes this wave of Indo-optimism undeniably stronger than ever.
Think about it – only a decade ago, over half of India was disenfranchised from basic amenities like access to cooking gas, banking services, and sanitation. And yet, fast forward through a decade marked by a pandemic and the reverberations of conflict, and that same half of India find itself not on the fringes, but at the centre of progress, peering outward.
And that’s the kind of force multiplier that will make India the next greatest economic power.
Admittedly, this departure from my usual scepticism signifies an acknowledgment of changing times and perspectives But, as always, I want to hear what you think about the new wave of Indo-optimism.
Till then, all eyes on the Honourable Finance Minister!
That’s all from me this week.
See you next week.
Cheers,
Rajat