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Zero to One - India's Economic Journey

India Clocked 13.5% Growth Rate in Q1 22-23. Is it enough?

“India’s Q1 GDP Growth Rate is 13.5%”, we all have heard and seen this headline in the newspapers and news channels in the recent months. So what is so fascinating about that? Let’s analyse it together.

First of all, you need to know what GDP i.e Gross Domestic Product is. In simple terms, the GDP of a country can be defined as “the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.” Taking an example, if a person produces goods valued at Rs 100 in the months April 22 – June 22, then the GDP for that Q1 22-23 would be Rs 300. Now coming to the talk of the town - India’s GDP growing by 13.5% in the Q1 21-22 i.e for the month of April – June, as compared to its previous quarter.

Past History

An estimate says that in the 17th Century, before the Britishers invaded this country, India had a Global GDP Share of around 25%, which was reduced to a bare minimum of 2.5% when the Britishers left in 1947. In the 200 years worth of ruling from around 1765 to 1938 by the British Empire, India lost around $45 Trillion. When put into perspective, this is approximately the combined GDP of the top 8 countries in the world.

It took almost 60 years for India to achieve the mark of a $1 Trillion Economy in 2002, and another 12 years to become a $2 trillion economy which occurred in 2014. Taking less than a decade to become a $3 trillion economy, India eventually became the fifth largest economy in the world. So it can rightly be said that the foundation for India to become the global leading economy in the coming decade is firm.

Now in 2022 , India has become the Fifth Largest Economy in the World by surpassing The United Kingdom with our GDP amounting to roughly $3.5 Trillion versus UK’s GDP of approximately $3.2 Trillion.

Global Scenario

With respect to the current global scenario of world economies, the G7 Group consists of 7 major economies - US, UK , Italy , Canada , Japan , France and Germany, and this group’s GDP accounts for approximately 40% of the global share.

G7 Group cumulatively clocked a negative growth rate on a quarter on quarter basis (comparing the quarter’s rate and not the full years) with the U.S, Japan, Italy & Canada’s GDP contracting by - 0.4% , -0.2% , 0.2% & 1.4% in Q1 21-22.

Focusing on the situation in the US, one of the key reasons why the economies of USA & UK are contracting is because of the rising inflation and the adamant appreciation of the “mighty dollar”.

Rising inflation on account of the increase in international Crude Oil prices which occurred due to the Russia-Ukraine Conflict are hurting the American economy. On an average, prices of Crude Oil per Barrel were around $70 - $80 (approx) whereas after the start of the conflict, the same has reached to an average rate of $100 - $120 (approx). Since many petroleum products like petrol, diesel, kerosene, etc. are being produced from crude oil, a rise can be seen in the price of every basic commodity which has led to a doomsday in terms of inflation.

While discussing the situation of the U.K & China, one of the pertinent factors is that since the value of the US dollar is continuously rising, subsequently the value of each country’s currency is also continuously falling. For the first time in the last twenty years, the Dollar and the British Pound are of almost the same value, and it is estimated that in sometime the Dollar will surpass the British Pound. Considering the fact that the UK doesn’t have the luxury of having large Foreign Currency reserves, accumulated with the rising double inflation rate, the economy of the UK is likely to contract further in the coming months.

Talking about China, the zero tolerance Covid policy has appeared to be a total disaster and there are huge breakouts of the Covid 19 in various parts of the country. This has led to lower productivity which has indeed prompted various manufacturers to shift their plants from China to other countries like India, Vietnam etc.

Prediction of the Indian Economy

With the economic crises going on in the world’s major economies, Moody’s & Fitch- which is the most reputed rating agency based in the US, has predicted the growth of India’s Economy by around 7% approx. for the year 2022, which is a great feat if compared with that of China which is around 4% approximately, and with the US which is expected to be around 1% .

The various reasons for India’s growth in Q1 21-22 in comparison to the World Economy are explored below.

India has been buying oil from the sanctioned hit Russia who was offering Oil at a discounted price. For example, if the international price of 1 barrel of Crude Oil was around $100, the same was offered at an amount of $60-70 to India and other players like China. This helped India save around Rs 35,000 crores, which aided in maintaining our forex Reserves.

Due to the US Central Bank continuously raising the interest rate, there is a steady appreciation for the US Dollar which is making the Indian Rupee redundant. If the value of the Indian rupee free falls, it can impact the growth rate of the economy severely, hence the RBI is using its forex reserves to maintain the demand of the Indian Rupee. This is helping in keeping the Indian Rupee stable. According to a report, India has spent almost $80-100 Billion in the past 9 months in the quest of not letting the rupee depreciate.

Because of the above two reasons, India has managed to keep its growth at a much higher percentage than the average growth rate of the global economy.

Roadmap for India for next 25 years

The contribution of the service sector was around 50% in the Q1 GDP growth. This clearly showcases that the service sector is the backbone of the Indian GDP, with big companies like TCS , Infosys and HCL having their revenue stream of more than 60% from outside India. With the current predicted growth rate, India is likely to become the 3rd largest economy by 2029. Currently, Japan is the 3rd largest economy with a GDP of around $5 Trillion.

If India wants to truly become an economic power in the next 25 years, it needs to work on a way to reduce the energy import bills i.e purchase of Crude Oil, Coal etc. Currently India spends roughly about $100 Billion on the purchase of Crude Oil. Also, it needs to strengthen its exports in various sectors like Defence, Textile etc. The Indian Government has initiated many plans such as Gati Shakti Yojana , National Logistics policy, etc to improve the country’s infrastructure. On the other side, the Indian Government is actively supporting Indian Startup Systems with the Make in India initiative which will reap bountiful results in the long term.

As Indians, we can individually boost the Indian Economy by collectively promoting the purchase of Indian Products & Products that are made in India.

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