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India will face high inflation due to rising food prices and wages in the near term. A rapid increase in oil price could also prove to be a shock to the Indian economy, according to a report released by Standard Chartered Bank.
“Currently, India has an inflation challenge…. one-way expectations as well as the strong economy have contributed to rising asset prices,'' according to the “India in the Super-Cycle” report.
However, the Indian economy could see an average growth of 9.2-9.3 per cent per annum, over a period of 20 years. According to the report, by 2030, India could see an eight-fold growth in its GDP and it could be the world's third largest economy.
“India's nominal GDP could top $30 trillion by 2030, against its current level of around $1.7 trillion'' the report said.
The report outlined the two big challenges for India as infrastructure (physical and education or skills) and regulatory environment.
A big challenge for India is to create jobs for half of the population, which is under 25 years, said Mr Gerald Lyons, Chief Economist, and Group Head, Global Research, Standard Chartered Bank. Therefore, it is crucial to raise manufacturing's share in the economy from 16-25 per cent over the next decade, as announced in the annual Budget.
Infrastructure investment
Another big challenge is the investment in infrastructure, said Mr Samiran Chakraborty, Head of Research, India, StanChart Bank. For this, there is need to improve the foreign direct investment.
Help in growth
Indian financial markets need to be developed and longer term savings such as mutual funds and pension funds should flow into the infrastructure sector, Mr Lyons said.
“There is a need to allow the financial sector to deepen and broaden as it will help domestic economy grow,'' he said.
Bank expansion
About the Indian regulatory environment, Mr Lyons said the subsidiary route for bank expansion should be avoided as it can work against an international bank.
“International banks need to operate as one entity because they can move capital around. Banks that facilitate international trade need to operate as single unit,'' he said.
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