While the country took 75 years to achieve a per capita income of $2,730, as per the International Monetary Fund projection, it will take only five years to add another $2,000, she said.
The “Indian era”, the minister said, will be shaped by its predominantly youthful population, who will provide a large base for total factor productivity improvements, savings and investment, on top of being a key and sustained driver of domestic consumption. Youths below the age of 24 account for 43% of population.
The financial system is now well capitalised to fuel productive credit growth and remains nimble to the expanding needs of a developing India, as it widened its scale and scope of financial inclusion. The country’s innovation prowess is maturing across sectors.
Sitharaman was speaking at the inaugural session of the Kautilya Economic Conclave in the national capital, organised by the finance ministry.
“India also finds itself amidst a global geopolitical re-positioning. This re-positioning can act as a structural force to India’s advantage by creating robust supply chains with countries with strategic congruence,” Sitharaman said.“India benefits from the new international order, which is reshaping better to reflect the power distribution of today’s world,” she added.Inequality has been declining, as reflected in the Gini coefficient for both rural and urban India and would improve further, she said, “as the effects of the last ten years of economic and structural reforms manifest more thoroughly in the data in the coming years” with the Covid shocks fading away.
The International Monetary Fund has forecast India will remain the world’s fastest-growing major economy in the current fiscal year and the next, with rates of expansion touching 7% and 6.5%, respectively, more than double the global averages.
Growth in a tougher environment
India’s growth over the coming decades will take place in a much more different and tougher global environment, Sitharaman said. “In the early 2000s, emerging markets like China grew relatively more easily due to a favourable global trade and investment climate,” she said. This poses a potential challenge (and an opportunity) for India.
Against this back drop, India must develop its domestic capacity to develop sustainably, while simultaneously pushing for diplomacy and cooperation, as it did during its G20 Presidency last year, she said.
India, accounting for 18% of the global population, seeks to double its per capita income in a matter of a few years, “in a fragmented and fractured world where several persistent conflicts may worsen, posing a threat to global peace that is the bedrock of prosperity”, she said.
The country’s development journey will also have to “contend with the twin challenges of dealing with the legacy emissions of the developed world and managing India’s energy transition”.
This balancing act “requires a whole-of-government approach and contextualised solutions unique to India”. “Moreover, India’s energy demand and energy use practices have something to offer the world, such as the food-to-feed balance,” Sitharaman said.
The minister also underscored the disruption potential new technologies and their lasting impact on labour, including workers at all levels.
“The resulting economic and social impacts may be more profound than the world has experienced. While this is a global phenomenon, it is more acute for India, given its vast young population and the need to create livelihoods for millions,” the minister said.
“It is also a question of the kind of society we wish to create that people gathered here and outside have to reflect upon,” she added.
Fiscal discipline and reforms
Sitharaman reiterated the pledge to prudent spending, saying the “commitment to fiscal discipline will not only help keep bond yields in check but will translate to lower economy-wide borrowing costs”. The fiscal deficit is estimated to decline from 5.6% of GDP in FY24 to 4.9% this financial year.
“Additionally, a larger proportion of fiscal deficit is now accounted for by capital outlays, indicating an increasingly investment-oriented deficit financing,” she said.
Capital spending is estimated to touch a record Rs 11.1 lakh crore in the current fiscal.
The decline in commodity prices has facilitated the lowering of the budgeted allocation for subsidies on fertiliser and fuel, she said.
“The role of the government lies in unleashing the structural drivers of growth using effective governance through Jan Bhagidari (people’s participation), with sound economic policies and strategic planning forming the cornerstone of the growth process,” she said.
“To ensure policy continuity, the bedrock of sustained growth, our government has initiated and sustained reforms across infrastructure, banking, trade policy, investment, and ease of doing business,” she added.