V Anantha Nageswaran, chief economic advisor of India, has said the Indian economy will reach $3 trillion by FY2022-23, and $7 trillion in the next five years. He was speaking during an event organised by the Merchants' Chamber of Commerce & Industry (MCCI).
Nageswaran said the continuation of the Russia-Ukraine conflict at the beginning of 2023 will "create geopolitical and geo-economic uncertainties." The end of China's Covid-19 restrictions, which entailed the opening up of the country's economy after two years, will also have an impact on the global economy, the crude oil market, and the growth of advanced economies such as the US and Europe, according to CEA Nageswaran. He said the lowering of interest rates by the US Federal Reserve in 2024 or 2025, will also have a significant impact on the domestic currency, rupee.
"In these contexts, the Indian economy will be of the size of $3 trillion at the end of March 2023 and $7 trillion in the next seven years, which is not impossible," Nageswaran said.
The government had earlier projected India's economy to reach $5 trillion by 2025.
Nageswaran's comment came days after the UK-based think tank, Centre for Economics and Business Research (CEBR), in its report in December last year, projected India's economy to reach $10 trillion by 2035. It said, "Over the next five years, India's annual rate of GDP growth is expected to average 6.4%, after which the growth is expected to average 6.5% in the subsequent nine years. This growth trajectory will propel India from fifth place on the CEBR's World Economic League Table in 2022 to third in the global rankings by 2037."
In December, the Reserve Bank of India, in its financial stability report said the Indian economy has been consolidating a recovery led by the robust revival of agriculture and services, and stable corporate performance.
"Amid economic, financial and political shocks, global macro financial risks have increased and the outlook is highly uncertain. Despite international spillovers and a challenging global environment, the Indian economy is navigating a path of recovery. In the Indian financial system, healthier balance sheets are enabling a robust recovery of credit flows even as profitability is improving," the report said.
Last year, the RBI hiked the key repo rates by 225 basis points in order to curtail inflation. The RBI also revised the current financial year GDP growth forecast to below 7%. The RBI kept the inflation target for the fiscal year unchanged at 6.7% while cautioning the battle against inflation is yet not over.
Despite macro challenges, Das said the RBI thinks economic activity will remain strong in Q3. "Real GDP growth at 6.3% in Q2 FY23 was on the lines expected by us. Overall, India’s real GDP is expected to grow by 6.8% in 2022-23."
The Nobel Laureate in Economics Douglas W Diamond, while cautioning Indian policymakers to remain defensive in their monetary and fiscal response to the global tightening, said India’s inflation rate is better in comparison with the rest of the world. In an interview with Fortune India last year, Diamond said, "Inflation in India is in reasonably good shape right now, compared to the rest of the world. You're a rapidly growing economy. Things are economically doing quite well in India right now."