Given the country’s innate strengths, it is possible to imagine India striking out into the next decade to become the second largest economy in the world not by 2048, but by 2031, and the largest economy of the world by 2060, said Michael Debabrata Patra, Deputy Governor, Reserve Bank of India (RBI) during a program at the Lal Bahadur Shastri National Academy of Administration, Mussoorie.
“It is possible to imagine India striking out into the next decade to become the second largest economy in the world not by 2048, but by 2031 and the largest economy of the world by 2060,” said Mr Patra.
The deputy governor stated during an event of the Mid-Career Training Programme for officials of the Indian Administrative Service on July 9, at the Lal Bahadur Shastri National Academy of Administration.
He also called India’s journey in economic development an eventful and arduous one and added that during the last financial year 2023-24, India became a USD 3.6 trillion-dollar economy.
“India had become a ₹ 295.4 lakh crore or USD 3.6 trillion dollars’ economy at current exchange rates. At a per capita income of ₹ 2,07,030 or USD 2,500, India belongs in the lower middle-income group of countries. Reaching here has been an eventful and arduous journey, marked by what statisticians call ‘structural breaks” said Mr Patra.
The deputy governor also added that if India wants to become a developed economy it will have to grow at a rate of 9.6 per cent per annum for the next ten years.
“If India can grow at the rate of 9.6 per cent per annum over the next ten years, it will break free of the shackles of the lower middle-income trap and become a developed economy,” he said.
“Historically, India’s investment has been financed by domestic savings, with households being the prime provider of resources to the rest of the economy. In the period 2021-23, the gross domestic saving rate has averaged 30.7 per cent of gross national disposable income. Thus, unlike many countries, India does not have to depend on foreign resources, which play a minor and supplemental role in the growth process,” he added.
The Organization for Economic Cooperation and Development (OECD) projects that in PPP (purchasing power parity) terms, India will overtake the US by 2048 to become the second-largest economy in the world.
For rising inflation in the Indian economy, the deputy governor stated that RBI is committed to aligning inflation with the target and the inflation will ease to 4.1 per cent in 2025-26.
“RBI has anchored expectations by remaining committed to aligning inflation with the target and regards the recent easing of price pressures as work in progress. It projects inflation to average 4.5 per cent in 2024-25 and 4.1 per cent in 2025-26. The taming of inflation lays the foundations of sustained high growth in the future” said the deputy governor.
He also shared that the Gross non-performing assets (GNPAs) in the banking system have steadily fallen from their peak in March 2018 to 2.8 per cent of total assets by March 2024. The adjusted for provisions, net NPAs are just 0.6 per cent. The capital and liquidity buffers of the country are well above the regulatory norms.
The current account gap in the balance of payments – has remained modest at around 1 per cent of GDP in 2023-24. This provides insulation to the Indian economy from external shocks and imparts viability and strength to the external sector. Illustratively, India’s gross external debt, which is the accumulation of current account deficits over time, is less than 20 per cent of GDP and almost entirely covered by the level of foreign exchange reserves, Patra explained.
Second, the rising growth trajectory on which India is poised is entrenched by macroeconomic and financial stability as inflation has fallen back into the tolerance band around the target of 4 per cent. This reflects the cumulative impact of steadfast monetary policy actions and supply management. In fact, core inflation that excludes food and fuel and is most amenable to monetary policy has fallen to its lowest level ever.
Alongside macroeconomic stability, financial stability is getting reinforced by prudent financial policies and active on-site supervision complemented with off-site surveillance, which harnesses SupTech, big data analytics and cyber security drills. India’s financial sector is predominantly bank-based. Gross non-performing assets (GNPAs) in the banking system have steadily fallen from their peak in March 2018 to 2.8 per cent of total assets by March 2024, he added.
Patra pointed out that another growth multiplier is India’s digital revolution. India is emerging as a world leader in leveraging digital technologies for transformative change. The trinity of JAM – Jan Dhan (basic no-frills accounts); Aadhaar (universal unique identification); and mobile phone connections – is expanding the ambit of formal finance, boosting tech start-ups and enabling the targeting of direct benefit transfers. India’s Unified Payment Interface (UPI), an open-ended system that powers multiple bank accounts into a single mobile application is propelling inter-bank peer-to-peer and person-to-merchant transactions seamlessly. Payment systems in India operate on a 24 by 7 by 365 basis. The internationalisation of the UPI is progressing rapidly, the RBI deputy Governor added.
