India enjoys strong economic rebound amid challenges

India has become one of the fastest-growing major economies in the post-pandemic world, although it faces multiple hurdles including a lack of infrastructure in some sectors, analysts say.

The country's GDP could grow by 7 percent in the 2022-23 financial year, according to figures released on Tuesday by the federal statistical office of India's Ministry of Statistics and Programme Implementation.

However, the data also show that India's economic growth rate slowed in the fourth quarter of last year to 4.4 percent, down from 6.3 percent in the third quarter.

"The Indian economy rebounded strongly in 2021 and 2022 from the severe economic disruptions during the first year of the global COVID-19 outbreak," said Rajiv Biswas, chief Asia economist at S&P Global Market Intelligence.

The medium-term economic outlook from 2023 to 2027 is for average annual real GDP growth of between 5.5 and 6.5 percent, he said. "This will continue to place India among the ranks of the world's fastest-growing emerging-market economies."

Kristalina Georgieva, managing director of the International Monetary Fund, said India is expected to contribute 15 percent of the world's growth in 2023, with the nation remaining a relative "bright spot" in the global economy.

There are multiple projections on India's economic growth, but almost all of them point to India being the fastest-growing among the large economies in 2023, said Swaran Singh, professor of diplomacy and disarmament at Jawaharlal Nehru University, New Delhi.

Biswas said India's service sector, which includes key sectors such as retail sales, financial services, and information technology, has been an important driver of economic growth.

"The information technology business process outsourcing sector (known as IT/BPO) has been one of the fastest-growing industry sectors in the past decade, as multinationals have rapidly increased their back office functions in India," he said.

India's IT/BPO industries are estimated to provide more than 5 million jobs and are contributing to rapid growth in services exports.

Biswas said India's key strengths for economic growth outlook over the next five to 10 years are its "youthful demographics" and household consumption spending. "Strong foreign direct investment inflows are also helping accelerate the development of India's manufacturing industry," he added.

Singh, who is also a visiting professor at Canada's University of British Columbia, told China Daily that India has put an enormous premium on improving its manufacturing sector and making it competitive by "inviting nations to come and 'Make in India', which has already picked up momentum".

However, the Indian economy faces many growth constraints, including inadequate infrastructure in key areas such as ports, rail, power generation and water infrastructure, and in urban development, according to Biswas.

"A key challenge for the Indian government in the next decade will be to further reduce urban and rural poverty rates," he said.

Lekha S. Chakraborty, an economist and professor at the National Institute of Public Finance and Policy, in New Delhi, highlighted the need for fiscal prudence. She told China Daily that policy coordination between monetary and fiscal policy is important for India's sustained economic growth recovery.

"This is the last year before India heads for major elections. Continued rises in interest rates by India's central bank (to tackle inflation) could lead to a hard landing," she warned.

Given the volatility in energy prices, geopolitical uncertainties and mounting inflation, as well as the looming prospect of a severe global slowdown, the Reserve Bank of India has not yet articulated if the current 6.6 percent rate is a "terminal rate" or whether there will be further hikes after the April Monetary Policy Committee meetings, said Chakraborty, who is also a member of the governing board of management at the International Institute of Public Finance, Munich.

Another important determinant of economic growth is stability, she said. "Our macroeconomic fundamentals need to be strong. And given that the current account deficit is widening, the growth recovery process could be affected."

Nouriel Roubini, professor emeritus at the Stern School of Business, wrote on Friday in a Project Syndicate article that "India's long-term success ultimately depends on whether it can foster and sustain a growth model that is competitive, dynamic, sustainable, inclusive and fair".

Arunava Das is a freelancer for China Daily.

Contact the writers at vivienxu@chinadailyapac.com.