Nicholas Spiro

Macroscope | Are the stars aligning for India’s economy to shine brighter than China’s?

At a time when much of the world is expected to fall into recession, domestic and external forces are helping to transform and lift India’s economy

The big question, however, is whether India, long touted as the next China, is resilient and reform-minded enough to continue on its upward trajectory

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A vendor fixes a light bulb at a vegetable market in New Delhi. India’s economy is forecast to grow by a brisk 6.8 per cent this year. Photo: AFP

Nicholas Spiro

Published: 10:00pm, 13 Oct 2022Updated: 11:06pm, 13 Oct 2022

Clouds of gloom have engulfed the global economy and markets. A toxic combination of persistently high inflation, dramatic rises in interest rates, geopolitical tensions, the lingering effects of the Covid-19 pandemic and mounting risks to financial stability have taken a heavy toll on business and consumer confidence.

On Tuesday, the International Monetary Fund (IMF) predicted that more than a third of the global economy would contract for two consecutive quarters – the technical definition of a recession – this year or next.

In equity markets, the MSCI All-Country World Index suffered its third straight quarter of declines, the longest streak of losses since the 2008 financial crash.

Yet, amid the storm clouds, a ray of sunshine is visible. India’s economy is forecast to grow by a brisk 6.8 per cent this year. This compares with an average rate of 3.7 per cent for emerging markets, whose slowdown is partly attributable to the sharp downturn in China, which is expected to grow just 3.2 per cent, data from the IMF shows.

From April to June, India’s gross domestic product expanded 13.5 per cent year on year, powered by pent-up demand following the removal of pandemic-related restrictions. Investment and private consumption soared 20 per cent and 26 per cent respectively.

Although growth is slowing as the reopening effect wanes and borrowing costs rise, activity in India’s vast services sector remained in expansion territory last month. Companies continued to take on more staff in response to robust demand, data from S&P Global shows.