As global economic growth goes down well below 2 per cent in 2023, India’s economic growth is expected to remain at 5 per cent. India’s high growth is not a transitory post-pandemic bounce-back, but a reflection of its structural strengths and growth drivers.

For global growth a combination of transitory shocks and secular forces has created a highly uncertain future, with the potential for a medium-term global stagnation. But India is being viewed as a bright spot in this global downturn.

Global population is getting older rapidly across the cohort of countries that make up more than 75 per cent of global GDP fuelling pressure on wages, supply shocks, pandemics, and high debt levels associated with an ageing population. Trade and finance policies are being used to cope not only with transitory shocks but also secular forces of ageing population and climate change.

The frameworks for fiscal and monetary policy have changed due to changes in global secular trends. How will India’s growth be impacted by these changes?

India’s growth model is less prone to the changes in global secular forces. India is a success story on the export of services, and services tend to shrink less compared to manufacturing during global economic downturns. Global exports of digitally delivered services have more than tripled during the last two decades, far greater than trade in goods, and India stands out as a winner.

India’s Youth Bulge

India’s growth will continue to benefit from demographic dividend and youth bulge. India’s demographic profile is well positioned to withstand adverse macroeconomic shocks, and there is space to borrow from residents, and build public private partnerships to finance additional spending on physical and human infrastructure. Also India’s domestic savings are on the rise. So, the future advantages are as follows:

First, a young population will avoid the risks of wage-price spiralling upwards, given the swelling of the labour force as baby boomers reach working age.

The second is the rise in women’s workforce activity that naturally accompanies a decline in fertility.

The third is that working ages also happen to be the prime years for savings, which is key to the accumulation of capital, creation of infrastructure and technological innovation. And the fourth is the further boost to savings that occurs as the incentive to save for longer periods of retirement increases with greater longevity.

India is expected to emerge with a middle class that is proportionately as large as that of the the US today. Empirical evidence, based on India’s household surveys, changing demographics and favourable trends in urbanisation, show that a massive shift towards a middle-class society is already in the making.

There are four key contributions that the middle class makes to economic growth and social progress. First, the middle class is a source of entrepreneurship. Second, the middle class is a major contributor to savings and human capital, as savings rates and the willingness to invest in human capital are higher amongst middle class households.

Third, they strengthen the links with education. The fourth channel that makes the middle-class special relates to consumption. The expanding demand for consumer durables — cars, motorcycles, televisions, air conditioners, mobile phones and refrigerators — is already happening.

Global climate change agenda will change trade policies and global supply chains. India has made huge progress in improving energy efficiency and green growth. The energy-intensive industries (iron and steel, fertiliser, petroleum refining, cement, aluminium, and pulp and paper) have recorded energy efficiency improvement. Digital advances will add to the advantage.

The writer is Senior Fellow, Pune International Development Center