Doha, Qatar: India is one of the fastest growing economies in the world, and rapidly transforming into an engine of global growth. During the 2000-2023, which includes the volatile years of the Global Financial Crisis and the Covid-pandemic, the average growth rate for the South-Asian giant was 6.5 percent.
This sustained performance pushed India to become the sixth economy in the world, representing 8 percent of the global economy. Given its size, a 6.5 percent growth rate for India adds 0.52 percentage points (p.p.) to global growth.
This implies that India explains an important share of the 3.2 percent global growth expected in 2024, QNB said in its economic commentary.
First, high investment levels will boost aggregate demand and expand production capacity. An important part of this story is explained by the impulse given by the central and state governments to capital expenditures.
The central government’s budget for infrastructure has more than tripled from five years ago to $135bn for the 2025 fiscal year.
Second, a large, young, and growing population will provide a seemingly endless supply of labor to bolster the expanding economy. Recently, India overtook China as the most populous country in the world, after reaching 1.4 billion people.
Third, an extensive reform agenda is set to provide firm support to growth in productivity.
Unlike other emerging economies in recent years, improvements in productivity have been an important factor in explaining economic growth in India.
According to the IMF, labor productivity in agriculture is a mere 2.3 percent of that of the world’s most productive agricultural industries. Labor productivity in services in India is 18 percent relative to the highest productivity service workers.
Given that 46 percent of the Indian labor force is in the low-productivity agricultural sector, encouraging the transition of workers to more productive activities will provide a significant boost to the economy. The government is also making progress in negotiating new bilateral trade agreements, and removing tariff and non-tariff barriers to trade.
All in all, India is set to continue on a firm growth path, expanding at rates close to 6.5 percent in 2024 and 2025, and maintaining strong momentum afterwards on the back of across-the-`board contributions from capital, labor, and productivity.
