Indian Economy Needs 8% Growth to Topple China as Global Driver: Barclays

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India’s economy needs to grow 8% a year in order to overtake China as the largest contributor to the global economy, Barclays Plc estimated, a scenario that requires much more investment, especially in traditional sectors. 

The South Asian nation should focus investment in areas like mining, utilities, transport and storage — sectors that have stronger spillover effects on the broader economy, Rahul Bajoria, a senior economist at Barclays in Mumbai, wrote in a note Tuesday. 

Investments in those sectors have “taken a back seat” in recent years in favor of newer industries, such as telecommunications and the digital sector, he said. Capacity constraints in traditional sectors mean that more investment in those areas are now needed, especially from the government, he said.

“Higher investment, especially in traditional sectors, should also have a positive impact on employment and household income, which is likely to be a key deliverable of the economic growth story pursued by policymakers,” he said. 

India’s economy grew about 8% on average over 2005-2010 and could return to that pace after next year’s general elections if the new government aims to do that while maintaining macroeconomic stability, Barclays estimated in a separate report last month. That would mean India would be in a position to become the biggest contributor to global growth and close its gap with China, it said. 

Citing figures from the International Monetary Fund, Barclays said China’s contribution to global gross domestic product is estimated at about 26% in the five-year period through 2028. India’s contribution is estimated at 16%, based on a GDP growth rate of 6.1% over the period. With 8% growth, India’s contribution would inch closer to China’s, according to Barclays. 

India’s government has stepped up infrastructure spending in the past few years, allocating a record 10 trillion rupees in the current fiscal year through March 2024. Prime Minister Narendra Modi is seeking to boost India’s economy to $5 trillion by 2024-25, from about estimated $3.7 trillion currently.

Barclays said the government is unlikely to maintain the strong pace of investment in capital projects, which means the private sector will need to step in. That echoes comments from Goldman Sachs Group Inc. in a report Monday.  

Source: Business Standard