On January 12, 2022, workers worked at the construction site of the Mumbai Coastal Highway Project.
Puneet Paranipet | AFP | Getty Images
Rob Subbaraman, chief economist and head of global markets research for Asia ex-Japan at Nomura Securities, said optimism about India’s economic growth shows few signs of slowing down, but if India hopes to To achieve strong growth, policy continuity will be crucial.
“The Modi government in the Modi 2.0 era has done very well,” Subbaraman told CNBC last week, referring to the two terms Modi and his ruling Bharatiya Janata Party have won since 2014.
Indian elections are underway and Modi is widely expected to win a strong mandate for a third term.
Subbaraman said on Friday that Nomura Securities expects the Indian economy to grow by an average of 7% over the next five years if current policies to promote growth remain unchanged.
This forecast is much higher than Nomura Securities’ growth forecast for China (3.9%), Singapore (2.5%) and South Korea (1.8%) during the same period.
“As China’s economy slows, India could become the fastest-growing Asian economy this decade,” Nomura Securities said in a recent report.
The bank’s analysts added: “Regardless of the election outcome, policy continuity and focus on macroeconomic stability are important fundamentals for growth.”
Nomura Securities’ forecast shows that under Modi’s rule, India’s economy is expected to grow 6.7% this year, while China is expected to grow 4%. The growth of large economies outside Asia such as the United States may also slow to 2.8% this year.
“The big change that’s happening in India is investment,” Subbaraman said. “Investment as a share of GDP is starting to rise. All the stars are aligning for private capital spending to start igniting, including FDI (foreign direct investment).”
While Nomura is bullish on India, Sonal Varma, the firm’s chief economist for India and Asia ex-Japan, warned in a note that headwinds remain and India must ensure a stronger economy to boost employment.
“A stronger foundation does not necessarily mean that the economy is invincible. Although the current economic growth recovery is strong, it is still uneven and there is a risk of global spillover effects.”
Mid-term growth drivers
India’s Minister of Railways, Communications, Electronics and Information Technology Ashwini Vaishnaw told CNBC in February this year that India’s gross domestic product (GDP) will increase in the next few years as India focuses on improving its manufacturing capabilities. The growth rate may be as high as 8%.
In the interim budget released earlier this year, the government earmarked 11.11 trillion rupees ($133.9 billion) in capital expenditure for fiscal 2025, an increase of 11.1% from the previous year.
However, Nomura Securities pointed out that India’s overall exports still only account for about 2% of global merchandise exports, and will continue to catch up with other Asian countries.
“We believe that the manufacturing take-off is still in its early stages and its full impact will be felt over the next 3-5 years.”
Nomura Securities said that India’s financial services industry accounts for about 7% of GDP and plays a more prominent role in driving the country’s economic growth.
“Just before the pandemic, India had an NPA problem and a massive cleanup of banks,” Subbaraman said. “Banking regulations and requirements across banks are better than ever.”
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